Social Security is undeniably our country's most important social program. Each month, nearly 64 million benefit payments head out, and more than 22 million recipients are being pulled above the federal poverty line as a result.
But it's also a pretty dynamic program that changes each year. As we head toward the inevitable changing of the calendar into a new decade, here are 10 things that you'll want to know about Social Security in 2020.
1. You're getting a raise
The most important Social Security announcement of the year is always made during the second week of October. That's when the U.S. Bureau of Labor Statistics releases September's inflation data, allowing for the official calculation of Social Security's cost-of-living adjustment, or COLA. Think of COLA as a "raise," although it's only designed to help program recipients keep up with the inflation they're facing.
In 2020, beneficiaries will see their payouts rise by 1.6%, which is more or less par for the course over the past decade. For the average retired worker, who was bringing home $1,475, as of September, we're talking about close to a $24-a-month increase in payout next year. Although a positive COLA is great news, keep in mind that Social Security's purchasing power has dwindled pretty significantly over the past decade.
2. The well-to-do can net a bigger benefit check
Believe it or not, Social Security has a maximum monthly payout at full retirement age -- i.e., the age at which you become eligible to receive 100% of your monthly payout, as determined by your birth year. In 2020, the most a retired worker can bring home a month at full retirement age is $3,011, although that's up a cool $150 a month from 2019.
As a reminder, Social Security takes into account your 35 highest-earning, inflation-adjusted years when calculating your monthly benefit at full retirement age. If you happen to hit the maximum taxable earnings cap 35 times over your working career, you'll be guaranteeing yourself a shot at this maximum monthly payout.
3. The full retirement age is increasing (again)
Speaking of the full retirement age, it's on the rise again. After increasing by two months to 66 years, six months in 2019, it'll climb another two months to 66 years, eight months in 2020 for those people born in 1958. This will mark only the 10th time the full retirement age has increased since Social Security was signed into law back in August 1935.
Ultimately, Social Security's full retirement age will peak at age 67 in 2022 for persons born in 1960 or later.
4. Disabled? You can earn more without your payouts being stopped
We often think of Social Security as a program designed to take care of the elderly, but it's also responsible for providing disability income to 10 million people each month, including 8.4 million long-term disabled workers. Next year, these disabled folks will be able to earn more income without their disability benefits being stopped.
In 2020, according to updates provided by the Social Security Administration (SSA), non-blind disabled beneficiaries can earn up to $1,260 a month before benefits cease. That's a $40-per-month increase from 2019. Meanwhile, blind disabled recipients can earn up to $2,110 each month without benefits being stopped next year, up $70 a month from 2019.
5. Social Security's withholding limits have changed
Working while receiving a Social Security retirement benefit? If you've not yet reached full retirement age, the SSA can penalize you by withholding some or all of your benefits, depending on your income. It's these income thresholds (aka the retirement earnings test) that are being adjusted in the upcoming year.
Next year, early claimants who won't reach their full retirement age will be allowed to earn $18,240 ($1,520 a month) before $1 in benefit withholdings kicks in for every $2 in earned income above this threshold. This is $50 a month higher than in 2019.
Comparatively, if you will hit your full retirement age sometime in 2020, the earning threshold is set at $48,600 ($4,050 a month), a $140/month increase from 2019. In this instance, $1 in benefits is withheld for every $3 in earned income above this threshold. Note, also, that the retirement earnings test doesn't apply once you reach full retirement age.
6. You'll have to work harder to earn those benefits
No, Social Security benefits aren't automatically given to you just because you were born in the United States. In order to qualify for a retired worker benefit, you're going to need to earn in through years of work.
Each year, a maximum of four lifetime work credits can be earned, with each quarter of coverage equating to $1,410 in income next year, up $50 a month from 2019. Essentially, if you earn $5,640 in income in 2020 (that's $1,410 x 4), you'll max out your work credits for the year. Once you've collected 40 lifetime work credits, you'll have guaranteed yourself a retirement benefit from Social Security.
7. The payroll tax earnings cap is rising
Social Security's payroll tax is the program's workhorse. Last year, it generated more than 88% of the $1 trillion collected by the program. And next year, this 12.4% tax on earned income is going to be asking the well-to-do to open their wallets a bit wider.
Just as there's a maximum monthly benefit that Social Security pays out each month, there's also a cap on how much income is taxable. This year, earned income (wages and salary, but not investment income) between $0.01 and $132,900 is taxable, while everything above $132,900 is exempt. In 2020, earned income up to $137,700 is taxable, meaning the well-to-do will owe payroll tax on up to another $4,800 in earned income.
8. 13 states and the federal government may tax your benefits
Speaking of tax, this is a good reminder that the federal government -- and 13 states -- may tax you on your Social Security benefits.
The federal government begins taxing a portion of your benefits if your modified adjusted gross income (MAGI) plus one-half of benefits exceeds $25,000 as a single filer or $32,000 as a couple filing jointly.
Meanwhile, 13 states tax Social Security benefits to some varied degree. For example, residents in Missouri only owe Social Security tax if their income surpasses $85,000 as a single filer or $100,000 as a couple, and even then there may be exemptions. Knowing your potential tax liability is important, because no one likes surprises come tax time.
9. The first year of projected net-cash outflows
According to the Social Security Board of Trustees' 2019 report, next year will mark the first time since 1982 that more money leaves the program than is brought in. Estimates in the intermediate-cost model call for a $1 billion net-cash outflow, with a number of ongoing demographic changes being blamed for this shift.
However, keep in mind that the Trustees also opined that 2018 would be the first year of outflows from the program, and that didn't materialize. Additionally, $1 billion in outflows is relative peanuts to the $2.9 trillion currently in asset reserves.
10. Insolvency isn't a concern
Lastly, despite all the concerns surrounding Social Security, understand that insolvency isn't on the table. Even if these aforementioned demographic changes do their worst and exhaust every last cent of the $2.9 trillion in asset reserves over the next 15 years, the program would be incapable of going bankrupt.
The reason? Social Security's two recurring sources of income -- the 12.4% payroll tax and the taxation of benefits -- ensure that there will always be money flowing into the program for disbursement to eligible beneficiaries. While a future benefit cut is a possibility, the chance of future generations receiving no benefit at all is pretty much zero.