One of the most asked about topics for any retirement planning professional is Social Security. It is one of the most important pieces of income for most retirees, and is often the least understood. As major overhauls to the program are kicked down the road, there have been several yearly updates that attempt to keep the program’s benefits up to date with inflation and rising wages.
Let’s start with the four main updates to the Social Security program for 2020:
- Current Social Security recipients will receive a 1.6% payout increase to their monthly benefit. This increase represents a cost-of-living adjustment (COLA) based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) which is the programs inflationary peg.
- The Social Security program will also increase the taxable earnings base from $132,900 to $137,700 in 2020. This amount is the maximum taxable earnings cap, which beyond that point people will no longer have Social Security payroll taxes deducted from their paychecks. The yearly amount is increased based upon the National Average Wage Index.
- While high income earners will now be paying more Social Security payroll tax, their maximum monthly payout at their full retirement age (FRA) will also be climbing by $150 to $3,011 in 2020. This equates to a yearly benefit increase of up to $1,800.
- Also updated in 2020, will be the amount early filers (before FRA) will be able to earn without having their benefits withheld. This year the retirement earnings test allows the Social Security Administration (SSA) to withhold $1 in benefits for every $2 earned above $18,240. The earning limit for the year in which you reach your FRA has also increased to $48,600, which will reduce your benefit $1 for every $3 above this threshold. After reaching your FRA there is no penalty for working and collecting benefits.