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Biggest Changes to Social Security for 2020 and Beyond

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    The Social Security program is undergoing yet another round of annual adjustments and changes for 2020. Going to talk about the biggest changes to SS benefits for 2020 and beyond here.

    1. COLA increase. The cost-of-living increase is meant to keep up with national inflation and for 2020 benefits will increase for everyone by 1.6%. Now that's not a lot; the average benefit for retired workers will only go up $24/month, and just $20 on average per month for disabled workers. But $24*12 months is $288 more in payouts on average for 2020, so it's definitely not nothing. Unfortunately national inflation projections for 2020 are ~2.5%. So it would be nice if the govt could tie the COLA increase to the actual real inflation, but that's for a different discussion I suppose.

    2. Retirement age goes up by 2 months. The full retirement age will increase from 66 years and 6 months in 2019 to 66 years and 8 months for persons born in 1958 onward. And this will continue to increase by 2 months in 2021 and 2022 until it caps out at an even 67 years for anyone born in 1960 or later. Something to keep in mind if you are on that retirement age bubble; definitely worth holding out a few more months if so to guarantee full benefit payouts when you retire.

    3. Maximum monthly payouts are increasing by $150/month. This is big news for those that earned well during their best 35 years of working. The max is going up from $2861/month to $3011/month, or potentially an additional $1800/year if you maxed out in taxable earnings in your best 35 years of employment.

    4. Payroll tax earnings cap increases by $4800. To combat raising the maximum payouts on higher earners, SSA is raising the tax window on payroll taxes on earned income. It was 12.4% payroll tax on earned income up to $132,900 but in 2020 that cap will raise to $137,700. If an employer paid you, you will only have to pay half of that, but for self-employed workers, they will foot the entire 12.4% payroll tax. The increase could be as much as $595.20 for self employed workers, or $297.60 more for everyone else.

    5. Disability benefits increasing. For non-blind SSDI recipients, starting in 2020 you can now get up to $40 more per month, going from a max of $1220 without benefits ceasing to $1260/month. And for blind SSDI recipents the increase is $70 more per month, going from $2040 to $2110/month, before benefits would be stopped.

    6. Withholding thresholds for early filers have changed. This one is a bit confusing so I am going to quote The Motley Fool verbatim here:

    The retirement earnings test allows the SSA to withhold some or all of your benefits if you've begun taking your payout prior to your full retirement age, are still working, and you surpass set income thresholds. In 2020, you're allowed to earn $18,240 ($1,520 a month) without any withholding if you won't hit your full retirement age. This is up $50 a month from 2019. But if you surpass $18,240, the SSA can withhold $1 in benefits for every $2 in earned income above this threshold.

    Meanwhile, if you will reach your full retirement age in 2020, you're allowed to earn $48,600 ($4,050 a month) before any withholding would kick in. That's up $140 a month from 2019. Plus, withholding here is only $1 in benefits for every $3 in earned income above the threshold.

    Take note that the retirement earnings test no longer applies when you hit your full retirement age (no matter when you began taking your payout), and that any withheld benefits are returned in the form of a higher monthly payout after hitting your full retirement age.


    7. Lifetime work credits are increasing. This is not great news, but at least the increase is fairly modest. Basically SSA says you have to have 40 lifetime work credits to fully qualify for SS retirement benefits, of which a max of 4 can be earned per year. This has not changed, but the earned income threshold has. In 2019, it was $1360 in earned income to one lifetime credit, but starting in 2020 that increases to $1410, an additional $50 per credit. So instead of 4 credits equaling $5,440, you'll have to earn $5,6400 to fully qualify.



    So those are all the biggest changes coming to Social Security, beginning in 2020. It's a mixed bag - benefits will increase slightly with inflation, retirement age continues to rise, max payouts for high earners are offset by more payroll taxes, withholding goes up for early filers but is offset by higher penalties if you go over and last but not least you have to earn a bit more throughout your life to get all these max benefits.

    Really the best news from all this is disability benefits going up. There doesn't seem to be a con to that pro.

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    bryce28 Wrote: 4. Payroll tax earnings cap increases by $4800. To combat raising the maximum payouts on higher earners, SSA is raising the tax window on payroll taxes on earned income. It was 12.4% payroll tax on earned income up to $132,900 but in 2020 that cap will raise to $137,700. If an employer paid you, you will only have to pay half of that, but for self-employed workers, they will foot the entire 12.4% payroll tax. The increase could be as much as $595.20 for self employed workers, or $297.60 more for everyone else.

    For all the talk about the Social Security trust fund depleting at an alarming rate, the government sure doesn't seem to be willing to do the obvious and dramatically raise the payroll tax earnings cap. To be clear, I'm not advocating an increase of the 12.4% payroll tax, but an increase in the $132,900 yearly maximum of taxable income per person.

    I don't really know what the right number is, but a cap of $132,900 in a country with 18,614,000 millionaires just seems terribly low, especially when Social Security benefits are the difference between keeping a roof over your head and living on the street for millions of lower-income seniors.

    It just seems like we can and should do more.

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    JaredS Wrote:

    For all the talk about the Social Security trust fund depleting at an alarming rate, the government sure doesn't seem to be willing to do the obvious and dramatically raise the payroll tax earnings cap. To be clear, I'm not advocating an increase of the 12.4% payroll tax, but an increase in the $132,900 yearly maximum of taxable income per person.

    I don't really know what the right number is, but a cap of $132,900 in a country with 18,614,000 millionaires just seems terribly low, especially when Social Security benefits are the difference between keeping a roof over your head and living on the street for millions of lower-income seniors.

    It just seems like we can and should do more.

    They did increase it, it went up to $137,700 starting in 2020. So an increase of $4800. But to your point I can see the argument to it being a good idea to increase it even more over time, to keep SS solvent.
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    bryce28 Wrote: They did increase it, it went up to $137,700 starting in 2020. So an increase of $4800. But to your point I can see the argument to it being a good idea to increase it even more over time, to keep SS solvent.
    That was my bigger point, but I do stand corrected. It's a touchy subject because the mere suggestion of raising taxes is a non-starter for millions of Americans, but it's a discussion we're going to have to have if we as a society want to keep Social Security solvent as our aging population lives longer and longer.
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    Ok,so I'll be 66 in May. AS I understand, I could request my SS in may and still keep working? How much can I earn? I'm a nurse and made about $75,000this past year Gross....only about $48,000 after taxes? So I could cut down on hours but collect a salary and my SS? Or would my SS payment be lower because I worked less hours?
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    Jodyangel Wrote: Ok,so I'll be 66 in May. AS I understand, I could request my SS in may and still keep working? How much can I earn? I'm a nurse and made about $75,000this past year Gross....only about $48,000 after taxes? So I could cut down on hours but collect a salary and my SS? Or would my SS payment be lower because I worked less hours?

    If you are born between 1943 and 1954, full retirement age is 66 years. After 1954 you start adding months. But you will be able to file for full benefits on your 66th birthday, assuming your birth year is 1954. And you won't have to worry about an earnings cap of any kind; earnings caps are only for taking Social Security benefits early.

    Here's an exert from the official SSA page (which I recommend reading the whole page for full clarification). It explains what happens if you receive benefits from filing early only:

    How Much Can I Earn And Still Get Benefits?

    If you are younger than full retirement age and make more than the yearly earnings limit, your earnings may reduce your benefit amount. (Full retirement age is 66 for people born between 1943 and 1954. Beginning with 1955, two months are added for every birth year until the full retirement age reaches 67 for people born in 1960 or later.)

    If you are under full retirement age for the entire year, we deduct $1 from your benefit payments for every $2 you earn above the annual limit. For 2019, that limit is $17,640.

    In the year you reach full retirement age, we deduct $1 in benefits for every $3 you earn above a different limit. In 2019, the limit on your earnings is $46,920 but we only count earnings before the month you reach your full retirement age.

    And once you reach full retirement age, you can continue to work and receive benefits AND there is no earnings cap. You will just have to continue to pay taxes on your earnings. Even better news for you is your benefits can get adjusted in your favor if you earn more in a given year after filing than you did earlier in your working life, as they take your best earnings years to determine your monthly payouts.

    When you reach full retirement age:

    • Beginning with the month you reach full retirement age, your earnings no longer reduce your benefits, no matter how much you earn.
    • We will recalculate your benefit amount to leave out the months when we reduced or withheld benefits due to your excess earnings.

    Hope that helps!