10,000 Baby Boomers are turning 65 every day, and Social Security will soon start to pay out more than it takes in. While it’s unlikely that the government will ever get rid of the program, there will likely be some changes in the coming years. It’s important to understand the system and to work closely with your trusted financial professional on how recent and future Social Security changes can potentially impact your overall retirement plan. Here’s what you need to know about Social Security changes in 2020.
1.6% Cost of Living Adjustment
Social Security’s nearly 69 million beneficiaries will see an increase to their benefits this year. This means that the average monthly benefit for all retirees increases to $1,503 a month, and the maximum benefit increases to $3,790. This 1.6% increase isn’t as big as last year’s 2.8% Cost of Living Adjustment, but it’s much better than 2016’s 0.3% increase, or 2015’s 0% increase.
With benefit increases come increased amount of earnings subject to the Social Security tax. In 2020, $137,700 in income will be subject to the tax, up from $132,900 in 2019. Taxes don’t stop once you stop receiving a paycheck. More than half of Americans pay taxes on their benefits. If your combined income* as an individual is between $25,000 and $34,000 or is between $32,000 and $44,000 as a married couple filing jointly, up to 50% of your benefit may be taxable. And if your combined income is over these amounts, up to 85% of your benefit may be taxable. Congress hasn’t increased these income thresholds to account for inflation since 1993.
No More Paper Statements
This change to Social Security has nothing to do with money, but is very important to note: The Social Security Administration will no longer mail benefit statements to anyone under the age of 60. It’s important to check your statement to make sure your time spent working and earnings are recorded correctly. In fact, research shows that when these statements are only available online and are not mailed to recipients, people are less likely to view them and make the optimal decisions when claiming their benefits. To make an online account, either look for a letter with an activation code or go onto the Social Security administration’s website. Once you know what you’re owed, you can work closely with a trusted financial professional on a Social Security claiming strategy.
You’ve paid into the Social Security system for your entire working life. So, take the time to find out how you can help maximize your benefit. At O’Donnell Financial Group, we can help you make these complicated decisions and figure out how Social Security fits into your overall retirement plan. Click here to sign up for a complimentary financial review so we can meet and discuss your unique retirement income needs.
*Combined income is equal to your adjusted gross income, plus nontaxable interest, plus half of your Social Security benefits.