According to the Social Security Administration, approximately 70 million Americans will see a 1.3% increase in their Social Security benefits and Supplemental Security Income (SSI) payments in 2021. The maximum Social Security retirement benefit for those retiring at full retirement age will be $3,148/month, while the average check will be $1,543/month for individuals and $2,596/month for couples. The standard SSI payment will be $794/month for individuals and $1,191/month for couples.
The increased payment for Social Security beneficiaries will begin in January 2021. Increased payments to SSI beneficiaries will begin on December 31, 2020.
Cost Of Living Adjustments
Why the increase? Federal benefit rates increase when the cost-of-living rises, as measured by the Department of Labor’s Consumer Price Index (CPI-W). The CPI-W measures the cost of goods and services – in other words, your cost of living. If inflation increases, the CPI-W also goes up signaling that it costs more to pay bills overall. An increase in benefits – often referred to as a cost-of-living adjustment (COLA) – is intended to helps to offset these costs.
The Social Security Administration will mail COLA notices throughout the month of December to retirement, survivors, and disability beneficiaries, SSI recipients, and representative payees. But, if you want to know your new benefit amount sooner, you can check online using the Message Center in your my Social Security account – as soon as early December. If you don’t have an account yet, you must create one by November 18, 2020 to receive the 2021 COLA notice online.
Payroll Tax Changes
Also changing? The maximum amount of earnings subject to the Social Security tax will increase to $142,800. That’s a pretty big shift: it was $137,700 in 2020. That means that wages up to $142,800 will be subject to Social Security tax. Social Security tax is 7.65% for employees with a matching contribution from employers (self-employed persons are responsible for the entire 13.3%).
So, if you make $142,801, only $142,800 is subject to tax, but the extra dollar is not subject to Social Security tax. And if you make $1,142,800, only $142,800 is subject to tax, but the extra million is not subject to Social Security tax. All wages remain subject to Medicare taxes
Retirement Earnings Limits
The earnings limit for workers who are younger than your normal retirement age will increase to $18,960. That means that the Social Security Administration will deduct $1 from benefits for each $2 earned over $18,960 until the month you hit your normal retirement age.
The earnings limit for people reaching their normal retirement age in 2021 will increase to $50,520. That means that the Social Security Administration will deduct $1 from benefits for each $3 earned over $50,520 until the month you hit your normal retirement age.
There is no limit on earnings for workers who are “full” retirement age or older for the entire year.
If you were born after 1960, your normal retirement age is 67. If you were born before 1960, you can check by using the retirement age chart here.
The retirement earnings test applies only to people below the normal retirement age. The Social Security Administration withholds benefits if your earnings exceed the retirement earnings test exempt amount, and if you are under the normal retirement age. Once you reach your normal retirement age, your monthly benefit will be increased permanently to account for the months in which benefits were withheld.
You can see all of the COLA adjustments here (downloads as a PDF).
