2021 Social Security Benefit and Payroll Tax Increases

Blog post #466

Social Security is still vital for nearly all Americans. Annual benefit payments can be $20,000-$38,000 per year, which is the equivalent having an asset of $500,000 – $1,000,0000 and withdrawing 4% per year from the account annually.

Social Security recipients will be receiving a 1.3% increase in 2021 benefits, which is slightly less than the 1.6% increase in 2020. The percentage increase in gross benefits would be the smallest annual COLA change since 2017, due to lower inflation. This benefit increase will likely be offset by slightly higher Medicare health premiums next year.

A 1.6% COLA increase in 2021 would raise the average Social Security retirement benefit by about $32 to $1,543, from $1,523. The 1.6% COLA increase would also increase the maximum retirement benefit from $3,011 to $3,148 for someone at full retirement age in 2021. This would be an annual benefit of almost $38,000.

If you delay starting Social Security from your full retirement age (age 66-67, depending on your year of birth) until age 70, your benefits increase 8% per year, for each year you postpone beginning to receive Social Security benefits. This decision should be evaluated closely, based on your health, family life expectancy and your financial situation.

In 2021, the maximum wage base subject to Social Security and Medicare taxes will increase 3.7%, or $5,100, from $137,700 to $142,800. This will cost employees and employers each an extra $316.20 more than in 2020. Additionally, all earnings, even those above the $142,800 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.

As in many past years, the rate of increase for the taxable wage base has risen more than the change in benefit increase. This is because the maximum wage base is determined from an index which measures wage growth, whereas the benefit change is based on the Consumer Price Index.

The earnings limit for those who claim Social Security benefits before their full retirement age will increase from $18,240 to $18,960 in 2021. If this applies to you, you lose $1 benefit for every $2 earned in wages or earned income over $18,960.

Social Security is a valuable benefit and should be considered in your long-term planning as a source of income that is not subject to financial market fluctuations.

Talk to us. We want to listen. We want to assist you, your family members and friends.

Source:

1. “Social Security announces 1.3% COLA for 2021,  InvestmentNews, by: Mary Beth Franklin 10/13/2020

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