If you’re currently collecting Social Security retirement income benefits, or if you soon will be, it is important to have a good understanding of how the program works, as well as the various methods for maximizing this incoming cash flow.
Similar to most other retirement and health care-related programs, changes to Social Security (and Medicare) usually occur at the end of every year when the Social Security Administration (SSA) announces the updates that will take effect the following January.
Going into 2021, there are several revisions to be mindful of—whether you have actually started receiving Social Security benefits or are still paying into the system as a worker.
Cost-of-Living Adjustment (COLA)
As the price of goods and services goes up, it is important to generate additional income in order to maintain your lifestyle. According to the SSA, an average retired worker in 2020 receives $1,520 per month, and an average retired couple brings in $2,563. Typically (but not always), Social Security recipients will receive a cost-of-living adjustment, or COLA. For 2021, benefits will increase by 1.3 percent. This equates to $20 per month more for individuals, and $33 more for the average retired couple. The maximum monthly Social Security benefit amount for recipients who are at full retirement age will go from $3,011 to $3,148 in 2021.
Higher Earnings-Test Limits
If you decide to collect Social Security income benefits prior to reaching your full retirement age and you are still working, you could be subject to the Social Security “earnings test” and have some of your benefits reduced by $1 for every $2 that you earn, up to a set annual amount. For 2021, this Social Security earnings test limit will be $18,960, which is up from $18,240 in 2020.
Increased Medicare Part B Premiums
For those who are covered by Medicare, the premiums for Part B (which covers doctors’ services, some outpatient procedures, and medical supplies and equipment) are deducted directly from your Social Security income each month. It was anticipated that the COVID-19 crisis would lead to significantly higher Medicare Part B premiums, but that turned out not to be the case. So even though Medicare premiums will go up, the amount will not be as high as initially expected.
Social Security Updates for Current Workers
In order to qualify for Social Security retirement income benefits, you need a total of 40 “work credits” that you accumulate by earning a certain amount of income each year. You can accumulate up to four work credits per year.
If you’re still working and paying taxes into the Social Security program, you would need to earn at least $5,880 in 2021 in order to add the maximum four Social Security work credits to your tally.
Social Security and Same-Sex Couples
If you are married, your partner may be able to collect Social Security spousal benefits, even if he or she did not work and pay taxes into the program. The spousal benefit can be as much as half of the qualified worker’s primary insurance amount (PIA), based on the spouse’s age when they file.
Following the Supreme Court’s 2015 overruling of the Defense of Marriage Act, or DOMA, same-sex married couples are no longer prohibited from receiving federal benefits (including Social Security retirement income as well as disability and survivor benefits).
Prior to the overturning of DOMA, marriage was defined as “a legal union between one man and one woman as husband and wife, and the word ‘spouse’ referred only to a person of the opposite sex who is a husband or a wife.” While some states recognized same-sex couples prior to 2015, the Supreme Court ruled that the 14th Amendment to the Constitution requires all state laws to recognize same-sex marriages going forward.
Therefore, the Social Security Administration now recognizes same-sex couples in all states, as well as some non-marital legal relationships, for the purpose of determining entitlement to Social Security benefits. The same holds true for entitlement to Medicare and Supplemental Security Income (SSI).
If you are already receiving Social Security benefits, it is important that you contact the Social Security Administration to inform them of your marriage (or divorce), as this could have an impact on the amount of your total household income from Social Security.
For instance, you may now be eligible for a new initial benefit determination based on what SSA defines as a “life-changing event.” Likewise, if you have changed your name following a marriage, the SSA also recommends that you report this so that your lifetime employment earnings (which determine the amount of your benefits) can continue to be properly recorded.
In order to proceed with any type of Social Security benefit change or update based on being married or divorced, you will need to provide proof of your marriage (in the form of a marriage certificate) to the Social Security Administration.
How to Maximize Social Security Income
With multiple strategies and time frames available for collecting Social Security retirement income, narrowing down the best method for you could seem a bit overwhelming, especially if you want these benefits to coordinate with other sources of retirement income you’re eligible for, such as a pension, annuity, and/or interest and dividends from personal savings and investments.
Working with a Certified Financial Planner practitioner who is also well-versed in Social Security can help. That way, you can take a look at the whole picture, rather than just individual income sources.
This article appears in the December 2020 issue of OutSmart magazine.