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Stratos Private WealthOctober, 20204 min read

The Social Security Administration Has Announced Cost of Living Adjustments & Tax Changes For 2021. Here’s What You Need to Know

The Social Security Administration Has Announced Cost of Living Adjustments & Tax Changes For 2021. Here's What You Need to Know
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Time to Read: 5 Minutes

On Tuesday, October 13, 2020, the Social Security Administration released important facts and figures for 2021 – including cost-of-living adjustments (COLA) for retirees and tax changes for the currently employed.  Here’s what you need to know:

The Good? Benefits Are Increasing

Those receiving Social Security benefits will see a 1.3 percent COLA increase in 2021. This change will impact around 70 million Americans – including 8 million SSI beneficiaries.

For the average retiree receiving Social Security benefits in January 2021, this will translate to a roughly $20 increase in monthly benefits – $1,543 up from $1,523. For couples both receiving benefits, the average will increase to $2,596 from $2,563.

Of note, this year’s COLA increase is lower than the previous two years – although, of course, a cost-of-living adjustment is never guaranteed. In 2009, 2010 and 2016, COLA bottomed out at zero percent. And in 2016, the COLA was a mere 0.3 percent – substantially lower than the 2.8 percent increase we saw in 2018.

The Bad? Taxes Are Increasing Too (For Some)

For those still working, the amount of earnings subject to Social Security tax has increased 3.7 percent from $137,700 in 2020 to a maximum of $142,800 in 2021. Employees and their employers will each continue to pay 6.2 percent of applicable earnings toward the 7.65 percent combined Social Security and Medicare rate. The 3.7 percent increase in applicable income is only in reference to the Social Security portion of the combined tax rate. Self-employed individuals will still be responsible for paying the full 15.3 percent of the Social Security and Medicare tax rate.1

For reference, the maximum Social Security tax in 2021 for a high-earning employee would be $8,853.60 – or $17,707.20 total including both the employee and employer’s contribution. This is compared to 2020’s maximum of $8,537.40, or $17,074.80 total.

The Need To Know? Social Security Earning Limits For Retirees

For those under the Social Security Administration’s determined full retirement age who are receiving a paycheck while receiving Social Security benefits should be aware of 2021’s earning limit changes.

Currently, full retirement age is considered to be 66, if you were born between 1943 and 1954. Below is a chart provided by the SSA in regards to full retirement age:

Year of Birth Full Retirement Age
1943-1954  66 
1955  66 & 2 months 
1956  66 & 4 months
1957  66 & 6 months 
1958  66 & 8 months 
1959  66 & 10 months 
1960 & later  67 

Those receiving benefits who have not yet reached full retirement age will be docked $1 in benefits for every $2 earned above $18,960 (or $1,580 per month) in 2021. This is an increase of $720 from 2020’s $18,240 per year limit.

It’s important to note that this limit increases somewhat substantially for those who will be reaching full retirement age that year. For 2020, that income limit is $48,600 per year, or $4,050 per month. In 2021, retirees will see that limit increase to $50,520 per year, or $4,210 per month. Applicable income earned above this amount will be withheld at a rate of $1 dollar for every $3 earned above the limit.

Beginning in the month you reach full retirement age, you will no longer be subject to earning limits.

Keeping track of changes in tax rates and future income is an important part of having a well-established retirement plan. If you’re wondering how these changes will affect your own financial standings, please reach out to Stratos Private Wealth for more information.

 

 Stratos Private Wealth is a division through which Stratos Wealth Partners, Ltd. markets wealth management services. Investment advisory services offered through Stratos Wealth Partners, Ltd., a registered investment adviser.  Stratos Wealth Partners and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only; and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.  To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.  Investing involves risk including possible loss of principal. Some of the information contained herein has been obtained from third party sources which are reasonably believed to be reliable, but we cannot guarantee its accuracy or completeness. The information should not be regarded as a complete analysis of the subjects discussed.

 
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Stratos Private Wealth

Stratos Private Wealth provides an exclusive combination of financial planning, life coaching, and investment management.

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