Prepare for 3 Important Changes to Social Security Coming in 2021

social security

Now that the presidential election is nearly over, I hope that folks will start to focus a little bit more attention on their financial planning to-do lists as we close out 2020. I know it’s tempting to get caught up in speculating what Congress and the Federal Reserve will or won’t do with regards to the economy, the markets, and health care. But those are unknown variables right now that none of us can control.

What I know for a fact is that anyone who wants to explore changes to their Medicare or Medicaid coverage needs to talk to a health care pro before December 7th.

And I also know that there are three significant changes to Social Security coming in 2021. I highly recommend that you discuss these issues with your fiduciary advisor before the end of the year so that you can start planning now.

1. Diet COLA.

The annual Social Security cost-of-living adjustment (COLA) helps benefits keep pace with increases in living expenses. In October, the Social Security Administration announced that the 2021 cost-of-living adjustment (COLA) would be 1.3%, which, on average, comes out to an extra $20 per month for single seniors and $33 per month for couples. That’s 0.3% less than the 2020 increase, and you can probably guess why.

Yup, Covid-19 has flattened the government’s COLA projections. Experts predict that even if we do get a vaccine by the end of the year, we’re still going to be dealing with lockdowns and social distancing requirements well into 2021. Those precautions go double for seniors who are far more vulnerable to the disease than their kids and grandkids. I suppose they are thinking the less we’re moving around, the less we’re spending on gasoline, air travel, restaurants, entertainment, and other typical living expenses.

2. Earn more if you keep working.

Starting with the SECURE Act of 2019, our government has been adjusting to a generation of healthier, more active seniors who are working longer, including during retirement. In 2021, Social Security will give a bit of a boost to working seniors who choose to take their benefits early. Beneficiaries who are age 65 or younger will be able to earn up to $18,960 before one benefit dollar is withheld for every $2 earned above the limit.

Now, earning $19,000 over the course of a year might not sound like much if you’re planning to take a part-time job in retirement just to keep busy a couple days per week. But what if you really like your new position and decide you want to add a few extra shifts? Or, what if you decide to start your own small business? Some working retirees might be better off delaying Social Security and letting that benefit grow rather than having those benefits withheld due to their retirement income.

Folks who haven’t yet retired should also be aware that in 2021 the maximum amount of earned income that’s subject to the 6.2% Social Security tax is going up by $5,100 to $142,800. You might want to make sure your working kids and grandkids discuss this change with their fiduciary advisor.

3. Full benefits come later.

Way back in 1983, Congress decided that one way to keep Social Security solvent was to gradually increase the age at which seniors qualified for full retirement benefits. Even then, experts were anticipating the trends in senior health and longevity that are bearing out today.

For everyone born between 1955 and 1959, the full retirement age increases by 2 months. That means anyone who is turning 62 in 2021 will have to wait until they are 66 years and 10 months old to claim full retirement. By 2027, seniors born after 1960 will have to wait until age 67 to take full retirement.

When should you take your benefits?

Remember, taking Social Security at your full retirement age guarantees you 100% of your benefit, as determined by the Social Security Administration’s primary insurance amount calculations. But if you delay taking Social Security until age 70, the size of your benefit will continue to grow.

That’s why, generally, we recommend that seniors who don’t need Social Security to pay their monthly bills wait until they turn 70 to start receiving their benefits. But these kinds of decisions are about more than just numbers. They’re about your individual health and life expectancies, how you and your spouse want to spend your retirement years and how you’re going to cover your basic needs.

If you have any questions or concerns, call up my team at Keen Wealth and schedule a year-end review. We can discuss these changes to Social Security and other important decisions that will keep you in the driver’s seat as we head into 2021.

Bill Keen: Some working retirees might be better off delaying Social Security and letting that benefit grow rather than having those benefits withheld due to their retirement income.

About Bill

Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.

KWMG, LLC’s dba Keen Wealth Advisors (“company”) is an SEC Registered Investment Advisor located in Overland Park, KS. The company and its representatives may only conduct business in those states where registered or where excluded/exempt or from licensure. For registration information please contact the SEC or the state securities regulators for the states where the company is notice filed. A copy of the company ADV is available upon request.

Advisory services are only offered to clients or prospective clients where the company and its representatives are properly licensed or exempt from licensure. No advice may be rendered by the company unless a client service agreement is in place. This information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy and is for illustrative purposes only. Clients and prospective clients must consider all relevant risk factors involved with each strategy, including costs or fees, and their own personal financial situations before trading.

The views outlined in the book, Keen on Retirement Engineering the Second Half of Your Life, are those of the author and should not be construed as individualized or personalized investment advice. Any economic and/or performance information cited is historical and not indicative of future results. Economic forecasts set forth may not develop as predicted.

The Amazon Best Seller ranking listed on marketing materials is specifically referring to Best Seller rankings for the Kindle Top 100 Paid Lists under the subcategories of: Budgeting and Financial Risk Management, based on data as of September 5, 2019. Amazon rankings although relevant on how a product is selling overall doesn’t necessarily indicate how well an item is selling among other similar items or similar item categories. Amazon may choose the most popular categories or subcategories within which an item has a high ranking to determine its best seller rankings. These rankings are updated hourly and as a result, should be expected to fluctuate as such. Keen Wealth Advisors and Amazon are not affiliated entities. For further details on Amazon rankings please visit https://www.keenwealthadvisors.com/important-disclosures.

Print Friendly, PDF & Email

Complimentary
30 Minute
Strategy Session