2020 Social Security Changes: Everything You Need to Know

Tens of millions of people rely on Social Security to make ends meet in retirement. In addition, millions more family members count on Social Security benefits that they earn because of the death or disability of a loved one. All told, Social Security is a trillion-dollar program with huge implications for its participants and the entire U.S. economy.

But as important as Social Security is for those who receive benefits, it's not an unchanging program. Each year, Social Security participants see changes to the program. It's true that most of the annual adjustments that Social Security makes are small and not particularly significant. But with so many people counting on the program, it's important to avoid even minor surprises that could affect your ability to get by financially. Below, we'll go through the 2020 changes to Social Security that everyone should know about .

Here are the changes that Social Security makes every year

Social Security has been one of the most stable government programs over time, paying out benefits on an interrupted basis for decades. Yet the rules governing Social Security make several slight changes annually. Most of these adjustments are intended to help Social Security keep fulfilling its mission of providing meaningful financial support to its participants, with regular annual changes to make sure the program keeps up with the times. These changes include the following:

• The annual cost-of-living adjustment to each Social Security recipient's benefits.
• The average benefit that a Social Security recipient can expect to receive.
• The maximum benefit that Social Security will pay in that given year.
• The threshold amounts that help determine how much one receives from Social Security.
• The maximum amount of worker income that's subject to Social Security payroll taxation.
• How much in earnings it takes to get a Social Security credit for purposes of qualifying for benefits.
• What the earnings limits are before which some Social Security recipients will see a portion of their benefits forfeited.
• The thresholds for how much those receiving Social Security disability benefits can earn without disqualifying them from future payments.
• The standard federal payment and related limits to Supplement Security Income benefits.
• The full retirement age for those turning 62 in 2020.

Let's see how each of these changes could affect you and other benefit recipients in 2020.

1. 2020's Social Security COLA: 1.6%

Social Security benefits are tied to inflation, making them extremely useful in helping people keep up with rising costs of living. The Social Security Administration does an annual calculation to determine how much of a cost-of-living adjustment to make to the previous year's benefits.

The process starts by looking at a measure of inflation known as the CPI-W. This index measures the prices that urban wage earners and clerical workers pay for a common basket of goods and services and tends to rise over time, but the increases can vary widely. Over the past dozen years, there've been some years where recipients got no cost-of-living adjustment at all, while increases have been as much as 5.8% in 2008 -- the biggest boost since the early 1980s.

In 2020, the cost-of-living increase will be 1.6%. The average CPI-W figure for the three months from July to September was 250.251, compared to an average CPI-W of 246.352 for the same three months in 2017. Divide those two numbers and you get 1.0158269, which rounds to the 1.6% figure above.

Not everyone's Social Security check will go up by the full 1.6% amount, however. If you're on Medicare, then you have your required premiums withheld from your check. With a $9.10 per month rise in Medicare Part B medical premiums taking effect in 2020, many seniors will see their net pay go up by less than 1.6%.

2. Average benefits for Social Security recipients: Up $20 to $46 per month

Admit it: You're curious about what most people get from Social Security. Each year, the SSA satisfies your curiosity by publishing average figures for Social Security benefits. Because of the cost-of-living adjustment, the average amount typically goes up each year. However, what's interesting is how much the typical monthly payout varies depending on which type of benefit you're entitled to receive.

Data source: SSA .

One thing to keep in mind about these average payouts is that there are many different ways to get the same amount of money from Social Security. Because the program uses average monthly earnings over a career of as long as 35 years, someone with a longer career but lower earnings can end up getting the same benefit as someone who didn't work as long but who typically earned more each year.

Maximum amount of earnings subject to Social Security payroll tax: Up $4,800

Social Security gets funded primarily from the payroll taxes that current workers pay. Employees have 6.2% of their pay withheld from their paychecks to go toward Social Security, and employers pay a matching 6.2% amount out of their own pockets. Those who're self-employed end up having to pay the full 12.4% amount themselves.

However, there's a maximum amount on which this tax gets imposed. This figure, called the Social Security wage base, usually rises with inflation each year.

For 2019, the Social Security wage base is $137,700. That's $4,800 greater than it was in 2019, and as you can see below, the wage base has been on the rise for some time:

Data source: SSA.

Some have advocated removing the limit entirely to give Social Security more funding. At least for now, though, there're no concrete plans to do so, and this number's very unlikely to change throughout 2020.

Social Security's "bend points" for determining benefit payouts: Up $34 and $202

There's some complicated math that goes into figuring out how much every Social Security recipient is entitled to get from the program. However, the general idea is pretty simple. First, take the average monthly earnings someone brought in over a 35-year career, adjusted for inflation. Then, run that average through a formula to come up with the base benefit. Finally, make any further adjustments based on the type of benefit and age at which the recipient claims Social Security.

The key aspect of translating average earnings into a base benefit, better known as the primary insurance amount, is using the benefit formula with the appropriate bend points. Up to the first bend point, Social Security recipients have 90% of their average income replaced by Social Security. Between the first and second bend point, 32% of income is replaced. Anything above the second bend point translates into a 15% income replacement rate.

For 2020 , the bend points are $960 and $5,785. Those numbers are higher by $34 and $202 respectively from 2019, meaning that most people with the same average monthly earnings who become eligible for Social Security in 2020 will make slightly more than those who become eligible in 2019.

The maximum Social Security benefit amount: Up $20

What many people find to be surprising is that there's a maximum amount of Social Security that you can receive. However, that's a natural consequence of how the maximum amount of earnings subject to tax interacts with the bend-point calculation for figuring out what your benefit payment will be. If you earn the maximum amount of earnings for the maximum 35 years of your career, it'll make the calculation for determining benefits yield a figure that no one will ever surpass.

However, the maximum will be different depending on the age of the person. The table below gives the details:

Data source: SSA.

There are two reasons for these age-based differences. First, the bend points for determining the benefit amount change every year for those turning 62, so bend points for a current 70-year-old are different than those for a current 62-year-old.

More importantly, someone claiming benefits at 62 has to accept a reduction in their monthly payout to account for the fact that they didn't wait until reaching full retirement age. That reduction is less for someone who claims at 65, and those who wait until 70 get additional credits for their retirement benefits that give them a much-higher monthly check.

What it takes to earn Social Security credits in 2020: Up $50

In order to qualify for Social Security, you have to earn a certain number of credits over your lifetime. For regular retirement benefits, you'll need 40 credits. And because you can only earn a maximum of four credits each year, it'll take most people 10 years to accumulate the credits they need in order to collect Social Security checks when they retire.

So how do you earn credits? It takes a certain amount of income from wages, salaries, or other work sources to get a credit, and that amount changes each year. In 2020, you'll earn a credit for every $1,410 in earned income you have, up to a maximum of $5,640. At that point, you'll have the four-credit maximum for 2020. The $1,410 per credit number is $50 higher than it was in 2019, but increases of that magnitude are pretty typical.

The full retirement age for those who turn 62 in 2020: Up 2 months

The age at which Social Security recipients were initially allowed to claim full retirement benefits was 65. Over time, though, that full retirement age has risen, and the higher the full retirement age is, the longer you have to wait in order to get the same level of benefits.

Those who are turning 62 in 2020 were born in 1958. As you can see in the table below, the full retirement age for those born in 1958 is two months older than it was for those born in 1957, who turned 62 in 2019. Notice that the ages are different for retirement and spousal benefits than the age for survivor benefits.

Data source: SSA.

Practically speaking, a higher full retirement age results in larger reductions for claiming Social Security early, and smaller credits for delaying Social Security. However, those near retirement age now will have to deal with steady increases in the full retirement age for the next several years before it finally levels out at age 67.

Earnings test for early retiree Social Security recipients: Up $600 and $1,680

The other reason why full retirement age is so important is that if you claim Social Security before full retirement age, then some or all of your benefits are subject to forfeiture if your earnings from work are above certain income limits. Once you reach full retirement age, these rules go away, and you can earn as much as you want and keep all of your Social Security as well.

There are two sets of earnings limits that apply to early retirees, but they apply in different situations. If you'll be younger than full retirement age throughout 2020, then you can earn a maximum of $18,240 during the year before you start having to give up Social Security benefits. Above that limit, you'll lose $1 in annual benefits for every $2 of earnings. So if you earned $19,640 -- $1,400 over the limit -- you'd have to give up $700 of your annual Social Security. The $18,240 figure is $600 higher than the corresponding number was in 2019.

Those who will reach full retirement age during 2019 have a much more generous earnings test. You can earn up to $48,600 without any penalty, and it takes $3 in earnings above that limit to lose $1 of benefits. Moreover, earnings after you hit full retirement age don't count, which can be especially advantageous for those who hit that mark early in the year. The $48,600 number is $1,680 greater than it was last year.

Income limits for most Social Security disability benefit recipients: Up $30 to $70

Social Security disability benefits can come in handy if something happens to you during your career. These benefits are intended to kick in when you become disabled for at least a year or more and are no longer able to work. Benefits typically continue until you're able to work again on a regular basis.

In determining eligibility for disability benefits, Social Security accounts for the fact that recipients might be able to do a minimum amount of work. The SSA looks at what it calls "substantial gainful activity" -- a set maximum amount of earnings per month. Go above that number, and you won't be able to get benefits. Stay below it, and you'll have the potential to keep getting disability checks.

For 2020, the substantial gainful activity limit for most people is $1,260 per month for those who aren't blind, up $40 from last year. Blind recipients have a higher limit of $2,110 per month, which is $70 higher than it was in 2019. Finally, SSA allows disability benefits during a trial work period as long as earnings haven't exceeded a certain amount in nine of the past 60 months. For 2019, that limit is $910 per month, $30 higher than in 2019.

Supplemental Security Income's requirements to qualify: Up $12 or $18

Finally, beyond regular Social Security, the SSA provides additional benefits to low-income retirees in need. The Supplemental Security Income program gives individuals up to $783 per month in 2020, or couples up to $1,175 per month. Those numbers are $12 and $18 higher than they were in 2019.

To qualify, individuals must also have no more than $2,000 in assets, excluding your home, vehicle, personal effects, and certain other items like life insurance policies or burial funds. The limit for couples is $3,000.

However, most recipients don't get the full amounts listed above. That's because the standard SSI payments are reduced by what's known as countable income, which includes most income but excludes a certain base of income from work, need-based benefits, and several other sources. For instance, if countable income comes in at $300, then an individual would get $783 minus $300 or $483 per month in 2019. Even though the amounts are relatively small, they can be crucial for the low-income recipients who get them.

Get the most you can from Social Security in 2020

Whether you're already getting benefits or will receive them in the near future, it's vital to know about Social Security  and how it'll work in 2020. By knowing about the changes, you'll be able to anticipate what Social Security will pay you and what you'll need to find to supplement your income from other sources.