By David Freitag~
The Social Security Administration recently released its Fact Sheet for 2021, with updates and changes for those receiving Social Security benefits.
There actually is some good news for retirees. 2021 will bring a cost-of-living increase to Social Security benefits, based on a 1.3% rise in the Consumer Price Index. By comparison, the increase in 2020 was 1.6%, and the increase in 2019 was a record-breaking 2.8%. With all the economic upheaval caused by COVID-19, many thought that 2021’s increase would be smaller than 1.3%.
There is more good news for workers with payroll taxes in 2021: There will be no change in the tax rate for Social Security benefits, which will remain at 6.2%. That amount will be matched by their employers. The payroll tax rate for Medicare Part A will remain at 1.45%, also matched by their employers.
Unfortunately, there is also some bad news.
There is a difference between the tax for Social Security and Medicare. The Social Security payroll tax is capped at a maximum earning base and, in 2021, that earning base will increase to $142,800.
This means workers and their employers will pay more payroll tax in 2021 if they make more than the earnings base. The Medicare part A taxes are not subject to an earning base cap, so Medicare taxes are paid on all of their earned income.
For workers collecting Social Security before their full retirement age, there is a small increase to the 2021 earnings test-exempt amounts. The earnings test will impact workers who make more than $18,960 in 2021, up from $18,240 in 2020. For workers collecting benefits in the year of their full retirement age, but before they actually reach their full retirement age, the earnings test-exempt amounts will increase to $50,520, up from $48,600 this year. Remember, in the month of your full retirement age, there is no earning test to worry about.
Finally, because of the cost-of-living increase, the maximum monthly benefit available to a worker who starts benefits at full retirement age will also increase to $3,148.
If you want to check on your own Social Security benefit at your full retirement age there is an easy-to-use calculator on www.ssa.gov. Here is the link to that calculator. This calculator is easy to use and takes about three minutes to run. Give it a test drive.
David Freitag, an industry veteran in financial services and wealth management, brings a deep passion and unparalleled knowledge of Social Security filing strategies and retirement income planning to his current role as a financial planning consultant for the Advanced Concepts Design Group of Massachusetts Mutual Life Insurance Company (MassMutual). His also holds a Master of Education and Bachelor of Science degrees from the University of Maryland.