When the new year rolls along, government benefit parameters are adjusted to reflect the current circumstances. The Social Security Administration (SSA) has shared some of their key numbers for 2021, and will take a look at them here.
Cost of Living Adjustment (COLA)
During most years, the Social Security Administration will increase the monthly benefits, and they use the Department of Labor’s Consumer Price Index to make their determinations.
In 2021, the Social Security benefits are going to go up by 1.3 percent. This may sound like a ridiculously small increase, but it is better than nothing. There were no COLAs at all in 2009, 2010, and 2015, so it can in fact get worse.
This year, the average benefit for an individual recipient has been $1523. When you factor in this increase, someone that is receiving this amount would theoretically get $1543 next year.
Maximum Taxable Income
The tax that you pay to contribute into the Social Security program is called the old-age, survivors, and disability insurance (OASDI) tax. It carries a rate of 6.2 percent at the present time, there is a maximum amount of income that is subject to this tax.
In 2020, the maximum is $137,700, but next year it is going up to $142,800. Since there is a cut off with regard to income that can be taxed, there is also a maximum benefit. This year, it is $3011, and in 2021 it will be $3148.
Early Retirement Earning Cap
You can choose to accept your Social Security benefit when you are as young as 62 years of age. This can sound like a great idea, but if you accept an early benefit, it will be reduced by somewhere between 25 percent and 30 percent of your full benefit. The exact percentage will depend on your birth year.
If you take an early benefit while you are still working, there is a limit on the amount that you can make without being penalized. This year, the limit is $18,240, and it is going up to $18,960 in 2021.
For those that are taking an early benefit, the penalty is one dollar for every two dollars that you earn above the maximum limit.
Medicare Part B Premium
We do not know the precise Medicare figures for next year at this time, but we will share them in a future post. However, we do know something about the Part B premium that we can pass along.
In September, a budget bill was passed that included a provision that addresses the Part B Medicare premium increase for 2021. This is the portion of the program that pays for treatment that is provided by doctors and other health care professionals.
Because of the economic impact of the coronavirus pandemic, the increase cannot be more than 25 percent of what it would have been if there were no extenuating circumstances.
Another relevant factor is the “held harmless” principle that is built into the Part B premium increases. This year, the premium for most people is $144.60 a month. It is higher for beneficiaries that earn more than $87,000 each year, but a small percentage of seniors claim this much income.
If the increase in the Part B premium exceeds the amount of the cost of living adjustment, the beneficiary would be held harmless. This means that their benefit would not be reduced by the difference. That’s the good news, but of course, they would get no increase either.
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