Every October, the Social Security Administration (SSA) releases the updates it will be making to social security for the coming year. This year, the SSA update included changes to a few major areas, all of which will take effect in 2020. Since social security is often a big factor in retirement planning, it’s important to understand how any changes will affect you. This is what you need to know about social security changes in 2020.
Cost of Living Adjustment
One of the most noteworthy changes to social security in 2020 is a Cost of Living Adjustment (COLA). This COLA adjustment means beneficiaries will receive more money. The goal of a COLA is to keep up with inflation, which causes the cost of goods and services to increase. So, beneficiaries will receive more money, but since inflation has caused the cost of goods and services to increase, beneficiaries won’t actually have more buying power. The COLA adjustment amounts to about a 1.6% increase, which will mean between $25 and $50 more per month, depending on how high an earner the beneficiary is.
Increase in Full Retirement Age
Another important change to social security is an increase in the full retirement age, also known as normal retirement age. The full retirement age is based on the birth year of the beneficiary and is when a retired individual is eligible to collect 100% of their social security. This change is especially notable, because this is only the tenth time a change has been made to the full retirement age since the creation of social security in 1935.
In 2020 there will be a two month increase to the full retirement age. This will bring the full retirement age from its current level of 66 years and six months to 66 years and eight months. Another two month increase will occur in both 2021 and 2022, which will bring the full retirement age to 67 for those who were born in 1960.
Changes for Higher Earners
In addition to the increases beneficiaries will receive and the normal retirement age, the recent updates have also increased the cap on the maximum social security benefits. Social security benefits depend on how much you earned while working, but there is a cap to the amount you can receive in benefits, no matter how much you earned.
The most recent updates have increased this cap, which is good news for higher earners. However, more of your social security will be taxed in 2020. Individuals with total income between $25,000 and $34,000 and married couples filing jointly with total income between $32,000 and $44,000 will pay taxes on 50% of their social security benefits. For individuals with income over $34,000 or married couples over $44,000, 85% of social security benefits are taxable.
In 2020, the Social Security Administration has made it slightly harder to qualify for social security. Becoming eligible for social security requires an individual to earn 40 work credits. These work credits can be earned throughout the individual’s life, and up to four credits can be earned a year. In 2019, one work credit required $1,360 in earned income. That means you could get all four work credits if you earned $5,440 a year or more.
In 2020, the amount of earned income required to get a work credit has been increased to $1,410, which comes to a total of $5,640 or more in earned income in order to earn four work credits in a year. This means that individuals must earn slightly more in order to qualify for social security.
Another social security change taking effect in 2020 will affect disabled workers. Social security was originally created for retirees, but has been expanded to cover disabled workers. Over eight million disabled workers currently rely on social security. For those who are disabled and receiving social security payments, there’s a cap for how much a disabled worker can earn without losing social security eligibility. A non-blind disabled worker can now earn $40 more a month, which brings the total amount they can earn in 2020 to $1,260. A blind disabled worker can earn $70 more a month, which brings the total amount they can earn in 2020 to $2,110.
How Will Social Security Changes Effect You?
This is primarily what you need to know about social security changes in 2020. Though these alterations may seem relatively minor, for those who are living off of social security, even small changes have a major impact. In order to learn more about how the changes to social security may affect you, speak with a financial advisor from Good Life Financial Advisors of Mount Pleasant. We look forward to assisting you.