With the flip of another calendar year, so too come the annual changes to your Social Security benefits. To avoid any surprises, here’s what you can expect:
1. Increase in monthly payments.
There will be a tiny cost-of-living raise this year: 1.3% to be exact (down slightly from 2020’s 1.6% increase). This will be effective with January payments.
2. Increase in full retirement age.
The Social Security Administration has been slowly raising full retirement age in recent years.
Your full retirement age depends on the year you were born. If you were born in 1959 and are turning 62 this year, your full retirement age is 66 years and 10 months.
If you’re born in 1960 or later, your full retirement age is 67.
As a reminder: Claiming benefits before reaching your full retirement age means accepting a permanent reduction to your monthly payout. Each year you delay taking social security, you will have 8% more, until age 70.
3. Higher tax cap.
If you’re still working, you’ll pay 6.2% of your earnings into the Social Security system until your income exceeds the taxable maximum.
In 2021, the maximum amount of earnings subject to Social Security tax will increase to $142,800 ($5,100 more).
Those who earn more than that will no longer have Social Security tax withheld from their paychecks.
4. Increase in work credits.
Barring special circumstances, workers must accrue 40 “work credits” in their lifetime to become eligible for Social Security benefits.
A work credit is three months’ worth of qualifying work in a year (also known as “quarter of coverage”). The amount of earnings required to have a qualifying quarter of coverage is increasing from $1,410 to $1,470.
For 2021, you will earn four work credits if you earn at least $5,880.
5. Increase in earnings limits.
Social Security beneficiaries who continue to work will be able to earn $720 more in 2021. Here’s how it works: If you’re collecting Social Security and you’re age 65 or younger, you can earn up to $18,960 in 2021 before any benefits are withheld.
If you earn more than the limit, $1 in benefits is withheld for every $2 earned above the limit. During the year you turn full retirement age, the penalty declines to $1 withheld for every $3 in excess earnings.
Then, once you turn your full retirement age, there is no penalty for working and collecting your benefits at the same time.