Social Security – Four Changes You Need to Know in 2020 by Kara Jones

Kara Jones
April 22, 2020

Social Security – Four Changes You Need to Know in 2020 by Kara Jones

As per Kara Jones, Did you know that around 33% of beneficiaries in the Social Security program avoid the poverty line as a result of the monthly payments? What’s more, when it comes to retired workers, the payments account for more than half of all income for over 60%. With this in mind, the value of Social Security is clear.

Despite the many benefits, one of the more challenging aspects is actually trying to keep up with the many changes and inflation adjustments. In October, more changes were announced, and they may affect you. Below, we’ve discussed four of the most significant adjustments and how you can prepare for them!

1. More Earnings for Early Filers

Kara Jones said Firstly, in 2020, income thresholds for retirement earnings are increasing. For those who reach full retirement age and earn more than a certain amount, they’re assessed by the SSA and may have some benefits withheld. This year, the threshold sits at $1,520 a month for people who won’t reach retirement age, which is $50 higher compared to 2019. At this level, $1 is withheld for every $2 above the threshold.

On the other hand, those who will reach retirement age have a threshold of $4,050 per month. Again, this is an increase compared to 2019; this time, a jump of $140 per month. When above the threshold, $1 is withheld for every $3 above the figure.

What does all of this mean? For one thing, there’s less of a punishment for early filers. For another, the retirement earnings test doesn’t apply after reaching retirement age (no matter when benefits are taken). If benefits are withheld, they’re later returned at the retirement age with a higher monthly payment.

2. A ‘Raise’ for Many

Great news; most recipients of Social Security will see an increase in their monthly payout. In 2020, recipients will get 1.6% more, and this means an increase of $24 to just over $1,500 for the average retiree.

Of course, many will concentrate on the fact that the 1.6% COLA (cost of living adjustment) is much smaller than the 2019 2.8% increase. However, it’s important to look at the figure in context, and it’s still better than what we’ve seen in recent years. While 2017 had a COLA of 0.3%, there was no adjustment at all in 2016, 2011, and 2010.

Kara Jones For senior citizens, many believe the purchasing power of their dollars will continue to decline. It has long been the case that the CPI-W fails to recognize the true inflation adjustments that retirees face each year. According to The Senior Citizens League, there has been an 18% decrease in the last decade and a 33% decrease since the turn of the millennium in the purchasing power of dollars for Social Security seniors.

Is the higher monthly payout really great news? While it seems positive on the face of it, we also need to consider Medicare Part B 7% premium increase. You might have noticed we put the word ‘raise’ in inverted commas, and this is because the extra payouts might not actually reach beneficiaries with this increase in Part B premiums.

3. Payroll Tax Changes

With payroll tax changes this year, we can also expect those with more money to pay more. Did you know that the 12.4% payroll tax on all earned income actually accounted for 88.5% of the total amount collected in 2018? As long as you didn’t earn over $132,900, this tax applied in 2019; it’s important to note that this doesn’t include investment income. Tied to the National Average Wage Index, the cap is increasing in 2020 and will reach $137,700.

We’re only talking to the largest earners here, but those in the high-income bracket will pay nearly $600 more into Social Security this year.

4. Larger Monthly Payout for High-Income Earners at Retirement Age

Kara Jones said Don’t worry, there is a silver lining, and it comes with a higher monthly payout at retirement age. With the maximum monthly payout increasing to $3,011 (a jump of $150), it has the potential to increase the annual payout to a level three times the federal poverty level.

In case you didn’t know, the amount you earn at full retirement age will depend on a number of factors. This includes:

• Employment History

• Earnings History

• Claiming Age

• Birth Year

As you can see, there are some big changes on the way for Social Security and millions of Americans. With this, we hope you’re in a better position to plan financially and remain prepared for everything that comes your way!