Social Security supports millions of Americans, giving them vital benefits in retirement or if they are disabled. For many of those recipients, Social Security contributes most or all of their income.
Motley Fool’s recent article, “4 Must-Know Facts About Social Security for 2020,” says that to get as much as you can from Social Security, you need to understand how each year’s changes will impact you. With benefit checks, retirement age, maximum benefit calculations and Social Security payroll taxes, there’s quite a bit for people to monitor with Social Security in 2020. Let’s look at few big changes:
- Next year’s cost-of-living adjustment. Every year, Social Security gives those receiving benefits a cost-of-living increase in their monthly checks. The amount varies from year to year, based on inflation figures. The SSA recently announced that it would increase benefit checks by 1.6% at the start of 2020. This bump will impact seniors in different ways. The typical retired worker will see monthly benefits rise from $1,479 to $1,503. For couples receiving two benefit checks, the typical total will rise by $40 to $2,531 per month. If you’re receiving Social Security benefits based on a family member’s work history, you’ll also see increases. Widowed parents with two children will see $46 more per month ($2,934). Surviving spouses without eligible children will receive a $22 per month increase to $1,422, while the typical disabled worker will see checks go up $20 to $1,258 per month.
- Early retirees in 2020 will see a higher full retirement age. The SSA figures your benefits using a formula that anticipates that you’ll claim Social Security when you reach full retirement age. If you claim earlier, then you’ll receive less than if you had waited. However, for those turning 62 in 2020, full retirement age will be slightly higher than it was for those turning 62 in 2019. Those born in 1958 will have a full retirement age of 66 and eight months—two months older than it was for people who were born in 1957 and reached 62 in 2019. Thus, 2020’s 62-year-olds will take a 28.33% reduction in their monthly payment, compared to what they’d get at full retirement age. That’s a little more than the 27.5% reduction that applied to 2019’s 62-year-olds.
- High earners can anticipate a larger maximum Social Security benefit. If you retire in 2020 and qualify for the maximum benefit, you’ll see a bigger check than those who retired this year. If you work to full retirement age before collecting benefits, your maximum amount for Social Security benefits will be $3,011. That’s an increase of $150 from 2019.
However, not every increase will be that large, because receiving the maximum depends significantly on exactly when you elect to retire and take benefits. For those claiming Social Security at 62, the maximum monthly benefit will go up $56 to $2,265. Those retiring at 65 will see a $100 increase to $2,857 per month. However, for those retiring at age 70, the increase will be minimal, increasing only $20 to $3,790 per month. Even if you end up short of the absolute maximum, those earning higher incomes can generally expect to see a boost to what they’ll receive.
- High-income workers can plan on paying more in Social Security taxes. Payroll taxes are the main source of revenue for Social Security, and the maximum Social Security payroll tax is going up. In 2020, $4,800 more in earnings will be subject to payroll tax, maxing out at $137,700. Between the 6.2% employee portion and the matching 6.2% employers have to pay, a total of 12.4% of your earnings will be taken by federal government.
Those earning in excess of $137,700, will have their withholding increase by $297.60. Self-employed workers will see their maximum taxes rise by $595.20. However, most workers won’t see any change at all, because typical Americans earn far less than $137,700, and the same 6.2% rate will continue to apply on total earnings below that amount.
Reference: Motley Fool (October 27, 2019) “4 Must-Know Facts About Social Security for 2020”
Suggested Key Terms: Elder Law Attorney, Social Security, Elder Care, Full Retirement Age, Payroll Taxes