Social Security Changes for 2020
The Social Security Administration recently detailed changes to Social Security beneficiaries going into effect at the end of 2019. Starting December 31, 2019, beneficiaries will see an increase in their monthly benefit amounts by 1.6% compared to 2019. For reference, last year’s benefits increased by 2.8%, the largest increase since 2011. As a result according to the Social Security Administration, this change will impact approximately 70 million Americans.
Who Makes Cost-of-Living Adjustments?
In 1975, automatic annual cost-of-living increases began to kick in for Social Security benefits based on increases in consumer prices. Benefits increase annually as the Bureau of Labor Statistics reports changes in inflation. Since the year 2000, the average cost-of-living increase for Social Security benefits has been about 2.15%. However, in years where the BLS reports zero or negative inflation, Social Security benefits will not be increased. This has happened three times in the past twenty years (2009, 2010, 2015).
Other Social Security Changes for 2020
In addition to the recent cost-of-living announcement, Social Security also released changes impacting workers who haven’t filed for benefits. Under current law, Social Security limits the amount of annual income that is subject to taxation. In 2020, only the first $137,700 of wages will be subject to taxation for the Social Security program. To clarify, that’s an increase of $4,800 from the 2019 limit of $132,900. Meaning in 2020, an employee will pay a 6.2% tax on the first $137,700 of earnings.
Changes to Income Earnings Limit
Employees receiving Social Security benefits that haven’t reached their full retirement age will also see changes to the income earnings limit. The earnings limit will increase in 2020 to $18,240, up from $17,640 in 2019. For every $2 of earnings above that number, $1 in Social Security benefits is withheld. These figures are for workers who are under the full retirement age and are receiving benefits. For workers who will reach full retirement age in 2020, the earnings test works a bit different. For every $3 earned above $48,600 in only the months prior to reaching full retirement age, $1 will be withheld from benefits.
What About Taxes?
There were no changes to the taxation of benefits announced. For single tax filers, up to 85% of benefits received may be taxable when provisional income exceeds $34,000 ($44,000 for married-filing-joint). Moreover, you can calculate provisional income by adding gross income (not including Social Security benefits) to tax-free interest received, plus 50% of Social Security benefits received.
Later this quarter, changes are expected to be announced regarding Medicare premiums for 2020.
So, do you have questions on how these Social Security changes could impact your retirement plan? Our financial planners are here to help. Schedule a complimentary consultation below or give us a call at 913-393-1000 to request your meeting today.
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