Those who rely on Social Security benefits are likely aware of the annual Social Security Cost of Living Adjustment (COLA). For those who are new to benefit access, this yearly adjustment is designed to ensure that inflation does not outpace your monthly benefits. While this is its purpose, the subject of whether it fully fulfills this purpose is of some debate.
What should you know about COLA 2021?
Expect a 1.3-Percent Increase in Your 2021 Monthly Benefits
As scheduled, the annual update for the COLA was presented in October, and this year nearly 64 million Americans should have received a 1.3-percent increase in their benefit checks beginning in January 2021. The roughly 8 million who receive SSI started getting their new monthly amount on December 31, 2020.
Benefits are expected to be payable to greater than 64 million Social Security beneficiaries alone, and some Americans are able to collect both Social Security and Supplemental Security Income.
How the Social Security Administration (SSA) Decides on Benefit Adjustments
There are additional adjustments taking effect in January based on average wage increases. For instance, in 2021, the maximum earnings amount subject to Social Security tax (the payroll tax cap) has increased by $5,100 (from $137,700 to $142,800).
All of these adjustments are based on the Consumer Price Index for Wage Earners and Clerical Workers (CPI-W) from the third quarter of the previous year. In layman’s terms, COLA has increased benefits because of the increases in consumer goods last year.
Learn more about the 2021 Social Security Cost of Living Adjustment and related taxes, benefits, and earnings for 2021 by clicking this link.
Three More Important Changes to Social Security in 2021
In addition to your COLA increase and the increase in the payroll tax cap, there are three additional changes to benefits in 2021.
These changes pertain to work credit accrual, early retirement, and Medicare premiums. Depending on one’s personal circumstances, these may be just as important as benefit payment increases.
“Quarter of Coverage” (or “Credit”) Amount Increased
Last year, workers were required to earn a minimum of $1,410 (throughout 2020) to qualify for a quarter of coverage. In 2021, that amount is increasing to $1,470. To earn the maximum four work credits in 2021 will require earnings of $5,880 for the year.
Early Retirees See Earnings Test Limits Climb
Those who decide to start receiving their retirement benefits early (it is possible to do this as young as age 62) will be able to get up to $1,580 per month, up from $1,520 last year. This amount increases to $4,210 per month the year someone reaches retirement age, up from $4,050 last year.
It is important to note, however, that anyone who makes over a certain amount of income while receiving retirement benefits will see those benefits reduced, and this varies depending on your age.
- Those under full retirement age whose earnings exceed the limit will have their benefits reduced by $1 for every $2 they are above the limit.
- The year an individual reaches full retirement age, $1 will be withheld for every $3 they are above the limit — but only for those months before they reach full retirement age.
Social Security will stop withholding the additional funds the month you reach your full retirement age, and increase your monthly payout in order to return withholdings over time.
Medicare Part B Recipients Get a Break on Premium Increases
Higher emergency Medicare spending was initially expected following the COVID-19 outbreak. So most industry professionals anticipated a major increase in Medicare premiums for 2021. Instead, a recent change in legislation left Medicare premiums lower than previously projected. This is good news.
Most Social Security beneficiaries who sign up for Medicare opt to have Part B premiums automatically deducted from their monthly benefits. It makes sense that a massive increase could quickly eat up any relief a COLA increase might offer.
As it stands, the standard premium for Part B (which covers, for example, doctor and outpatient services as well as durable medical equipment) will only increase by $3.90 per month in 2021 due to the legislation update.
We help individuals in Social Security Disability claims and in personal injury matters. For specific questions or concerns regarding filing for Social Security benefits or appealing a denial, please reach out today for more information. We are here to help!