If you are one of the nearly 69 million Americans who receive Social Security or Supplemental Security Income benefits, you will notice a small change in your monthly check this year.
More than 63 million beneficiaries will receive a cost of living adjustment of 1.6% this month. The 8 million SSI beneficiaries received their COLA on December 31.
In other words: the average monthly benefit for all retired workers will increase from $ 1,479 to $ 1,503 this month. And the average monthly benefit for couples receiving both benefits will increase from $ 2,491 to $ 2,531.
That is one of the many changes that beneficiaries and potential beneficiaries can expect in 2020.
Here are some others:
Save better, spend better:Sign up for The Daily Money and receive all the tips directly in your inbox
Tax change concerns:Some retirees feel less confident about changes to a law
I return without payment? Payless ShoeSource emerges from Chapter 11 bankruptcy and plans to open some stores in the US. UU.
Earnings subject to Social Security tax
The maximum amount of income subject to Social Security tax will increase from $ 132,900 in 2019 to $ 137,700 in 2020. To be fair, this increase affects only 11.8 million of the 171 million workers who are covered by Social Security. But that increase, according to David Freitag, MassMutual financial planning consultant, might come as a surprise to 7% of workers who will have to pay around $ 298 more of their salaries to Social Security in 2020 than in 2019.
As background, workers must pay 6.2% of their earnings up to the maximum amount taxable in Social Security. And they must pay 1.45% of all their earnings on Medicare. Your employer matches, to the maximum taxable, these percentages for a total of 15.3%. Meanwhile, freelancers must pay 15.3% of their earnings in federal payroll taxes, also known as FICA, the Federal Insurance Contributions Tax.
The only good news about this increase? You and your employer will not have to pay a Social Security tax on earnings that exceed the maximum taxable amount.
How work affects your benefits
If you work, receive Social Security benefits and are less than the full retirement age, your earnings may reduce your benefit amount. (The full retirement age is the age at which you are first entitled to full or non-reduced retirement benefits through Social Security).
In 2020, for example, the Social Security Administration will deduct $ 1 of benefits for every $ 2 earned over $ 18,240.
However, the earnings limit for people who turn 66 in 2020 will increase to $ 48,600 and the SSA will deduct $ 1 of benefits for every $ 3 earned over $ 48,600 until the month the worker turns 66. FRA is 66 for people born between 1943 and 1954. As of 1955, two months are added for each year of birth until the full retirement age reaches 67 for people born in 1960 or later.
One positive thing here: there is no limit on earnings for workers who are FRA or greater throughout the year.
Car agreement? Buy an ‘old’ model that sells like a ‘new classic’
Social security and taxes
According to the SSA, just over half of Americans (56%) pay taxes on their Social Security benefits. And that percentage is likely to increase given that income tax thresholds for Social Security are not, by law, adjusted for inflation, according to Joseph Stenken, Ameritas advanced market product consultant and author of “Insurance Data Social and Medicare. “
For a person whose combined income is between $ 25,000 and $ 34,000, up to 50% of their Social Security benefits may be taxable. For income over $ 34,000, up to 85% of benefits may be subject to taxes.
And for those who file a joint return and whose combined income is between $ 32,000 and $ 44,000, up to 50% of the benefits may be subject to taxes. For income over $ 44,000, up to 85% of benefits may be subject to taxes.
“These thresholds have not been adjusted by Congress since 1993, more than 25 years ago,” says Stenken. “More and more beneficiaries will be subject to income tax on their benefits.”
Freitag adds: “The fact that the Social Security income tax thresholds have not changed is really a” covert tax “that operates under the radar and can often be a big surprise to the beneficiaries who are charging benefits. “.
The SAFE Law
The SECURE Act, a bipartisan retirement bill that President Donald Trump enacted at the end of last year, will also affect current and future beneficiaries in at least a couple of ways, says Stenken.
First, those who turn 70 and a half after 2019 may delay taking the required minimum distributions or RMDs from their retirement accounts until they are 72. An RMD is, in general, the minimum amount that the owner of an account of Retirement plan must withdraw annually.
And this could be a mix for designated beneficiaries who are not spouses. Said beneficiary is defined as a living person for whom life expectancy can be calculated and who is not the spouse of the owner of the retirement account.
Under the previous law, designated beneficiaries who are not spouses can take distributions throughout their lives. But now, for many retirement account owners who died in 2020 and beyond, the beneficiaries will have only 10 years to empty the account.
Robert Powell is the editor of TheStreet’s Retirement Daily www.retirement.thestreet.com and regularly contributes to USA TODAY. Do you have questions about money? Send an email to Bob at firstname.lastname@example.org.