The Social Security Administration has set the Cost of Living Adjustment (COLA) at 1.3 percent for 2021, marking the smallest increase since 2017. Here’s how much Social Security checks will increase in 2021 and what retirees need to know.
If you are one of the 70 million Americans who receive Social Security benefits, you will see about $20 more in your monthly check. For individuals, this equates on average to about $1,543 per month and $2,596 for couples. For most Social Security beneficiaries, the increase will take effect in January 2021. For those who receive Supplemental Security Income (SSI), the increase will begin on December 31, 2020.
There’s also a change that affects those of us who are still working. The maximum amount of income that’s subject to Social Security tax will increase by 3.7 percent to $142,800 in 2021. (Note that the tax rates themselves will remain the same: 7.65 percent for employees and 15.3 percent for self-employed workers).
Remember that you can start claiming Social Security starting at age 62. But in order to receive 100 percent of your benefit, you need to be at your full retirement age (FRA), which, depending on when you were born is either age 66 or 67. You can also increase your benefit by 8 percent each year you wait to claim after your FRA, up to age 70.
Beneficiaries will be notified of these changes by mail starting in December, and you can also access the details through your personal account.
WHY IT MATTERS
While inflation has been muted in recent years compared to its historical rate, costs are still rising. According to the latest data from the Bureau of Labor Statistics the overall Consumer Price Index (CPI), or the average price of all consumer goods, has risen by 1.4 percent over the past 12 months. While that may not sound like much, when you consider that food costs (both at home and at restaurants) have increased by 4 percent and medical care services have grown by nearly 5 percent, the 1.3 percent COLA feels a lot smaller.
All of this is to say that Social Security should be just one piece of your retirement plan. With the average American living until their mid-80s, diversification is the name of the game in order to maximize your savings and generate income.