2020 Social Security Benefit and Payroll Tax Increases

Blog post #416

Social Security is still vital for nearly all Americans. Annual payments can be $15,000-$36,000 per year, which is the equivalent of withdrawing 4% per year from an account value of $400,000-$900,000.

Social Security recipients will be receiving a 1.6% increase in 2020 benefits. This benefit increase will likely be partially offset by slightly higher Medicare health premiums in 2020.

The increase in gross benefits would be the smallest annual COLA change since 2017. Recent changes have been: 2019 – 2.8%, 2018 – 2.0%, 2017 – 0.3% and 2016 – no increase.

A 1.6% COLA increase in 2020 would raise the average monthly Social Security retirement benefit by about $32, to $1,503. The 1.6% COLA increase would also increase the maximum retirement benefit, currently $2,861 per month, by about $150 per month, to $3,011 for someone at full retirement age in 2020.

In 2020, the maximum wage base subject to Social Security and Medicare taxes will increase $4,800, from $132,900 to $137,700, a 3.6% increase. This will cost employees and employers each $367.20. Additionally, all earnings, even those above the $137,700 Social Security maximum, are subject to a 1.45% Medicare tax. Plus, individuals with earned income above $200,000 and married filers with earned income above $250,000 pay an additional .9% in Medicare taxes.

The earnings limit for those who claim Social Security benefits before their full retirement age will increase from $17,040 to $18,240 in 2020. If this applies to you, you lose $1 benefit for every $2 earned in wages or earned income over $18,240.

We hope this information is helpful to you.  Regardless of your other assets, Social Security benefits are an important aspect of your financial future.  Please contact us if you have questions about Social Security or related planning matters.

Source:
“Social Security COLA for 2020 will be 1.6 percent”, InvestmentNews.comby Mary Beth Franklin, October 10, 2019
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