For current retirees and those planning to retire soon, it's important to pay careful attention to any changes to Social Security benefits. In 2021, several key numbers are changing in a way that could affect your income.
Here are three new numbers you need to know that could have an impact on the amount of money you get from Social Security and that could shape some key decisions you make related to these important retirement benefits.
For retirees already getting benefits, this is one of the most important numbers to know. It's the cost-of-living adjustment, or COLA, for 2021. COLAs occur so benefits don't lose buying power due to inflation (although this doesn't exactly work perfectly). They'll raise the amount of monthly checks.
A 1.3% COLA means a retiree receiving this year's average benefit will get around $20 more per month. This isn't a big increase, of course, and this year's COLA is actually the lowest since 2017. Still, there have been some years of $0 raises -- and for a period of time it looked like 2021 might be one of them, so seniors are fortunate to see money extra money at all. And while rising Medicare premiums will take a small bite out of the COLA, the monthly premium for Medicare Part B is going up by only $3.90 so most seniors will still see some extra money in their checks.
2. 66 and 2 months
Any current or future retiree who didn't hit the age of 66 by 2020 needs to know this number. Starting in 2021, it'll be the earliest possible full retirement age for those who hadn't yet hit FRA.
Full retirement age, or FRA, is the age when you become eligible for your standard Social Security benefit. It's also the age when you can work as much as you want without being subject to a retirement earnings test (RET) that potentially leads to some of your benefits being temporarily withheld if your earnings are too high.
For those born between 1943 and 1954, full retirement age was 66. That means everyone with that FRA will have hit it already by 2020. Starting next year, FRA is gradually moving later. For those born in 1955 and who are turning 66 next year, their new retirement age will be 66 and 2 months instead. And for those born in 1956, it'll be 66 and 4 months, and so on until it hits 67 for anyone born in 1960 or later.
A change to FRA is a big deal because it means you'll have to wait a little longer to claim benefits if you don't want to face early-filing penalties. And you'll have to wait a little longer before you can work without worrying about the RET or before you can begin earning delayed retirement credits that are available between FRA and 70. If you'd marked the calendar to retire or boost your earnings at FRA and you haven't hit it already by the end of 2020, you need to know that finally turning 66 won't cut it as it did for past retirees -- you've got to wait those extra few months.
3. $18,960 (or $50,520)
Remember that retirement earnings test I mentioned above? For those who receive Social Security benefits and who work when they're below FRA, it results in benefits being forfeited temporarily if your earnings exceed a certain threshold. The good news is, those thresholds are going up next year.
For anyone who is working but won't hit their FRA during the entire year, the new limit is $18,960, up from $18,240. If you earn above this new higher limit in 2021, you'll lose $1 in Social Security benefits for every $2 extra earned. For those who will hit their FRA at some point during the year, the limit is jumping to $50,520 for 2021, up from $48,600 in 2020. If you exceed this higher limit, you'll lose $1 in benefits for every $3 extra earned above it.
While the money you forfeit isn't necessarily gone for good, since your monthly benefit is recalculated at full retirement age to account for the benefits you didn't receive, it can still be upsetting to see some of your monthly money disappear if you're counting on both working and earning a paycheck. As a result, it's good news you can make a little more money due to this change to the RET thresholds in 2021.