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Home » Retirement Planning » What Is the 2021 Social Security COLA?

What Is the 2021 Social Security COLA?

October 22, 2020 by Pamela Potter

retirement planning 3Government benefits for seniors are adjusted annually, and a new year is just around the corner. Some updated figures have been released, and we will share them in this post so you can stay a step ahead of the pack.

Cost of Living Adjustment (COLA)

The Social Security Administration uses the Department of Labor’s Consumer Price Index to consider cost-of-living increases. We are using the term “consider” because it is not a given; there were no increases for three of the last 11 years.

In 2021, there will be a very modest increase of 1.3 percent. The average benefit amount this year is $1523, and theoretically, the increase would bring this average monthly benefit up to $1543. We will explain the choice of the word “theoretically” in a later section.

Maximum Taxable Income

Payroll and self-employment taxes are broken up into the Medicare tax and the old-age, survivors, and disability insurance (OASDI) tax. The latter tax carries a 6.2 percent rate, and there is a maximum amount of income that is subject to the tax.

This year, the maximum is $137,700, and it will go up to $142,800 next year. Since there is a maximum amount of income that can be taxed, there is also a maximum benefit. Right now, it is $3011 a month, and it will be raised to $3148 in 2021.

Early Retirement Income Penalty Threshold

The age at which you can start to receive your full Social Security benefit depends on the year of your birth. We will not get into all the details here, but the age will range from 66 to 67, with monthly increments in between.

If you choose to do so, you can accept an early benefit when you are as young as 62 years of age. This can sound appealing on the surface, but there are two problems with the early benefit.

One of them is the fact that it is a reduced benefit, and the reduction is significant. Depending on your birth year, it will be somewhere between 25 percent and 30 percent.

In addition to this drawback, many people are still working when they are 62 years old. If you accept the benefit at this age and you are still earning income, you are penalized if you earn more than a certain amount.

This year, the maximum income before a penalty is $18,240, and it is going up to $18,960 when we enter into the new year. If you are receiving an early benefit, it is reduced by one dollar for every two dollars that you earn above the limit.

Medicare Part B Increase

The cost of living adjustment is certainly welcome, but it can be offset by increased out-of-pocket Medicare costs. Part B is the portion of the program that pays for treatment that is provided by doctors and other health care providers. Medicare will pay 80 percent of expenses that are covered under Part B, and you are responsible for the rest.

A federal budget provision that was passed as a response to the economic impact of the coronavirus included a cap on the amount that Medicare Part B can be raised for next year.

It cannot go over 25 percent of the increase that would have been imposed under ordinary circumstances. Plus, there is an existing provision that ensures that a beneficiary will not receive a reduced benefit if the Part B premium increase is more than the cost of living adjustment.

Access Our Free Worksheet

We have a number of excellent resources on this website, and one of them is our estate planning worksheet. You can learn a lot if you take the time to go through it, and it is being offered free of charge.

To get your copy, visit our worksheet page and follow the simple instructions.

Need Help Now?

If you are past the learning stage and fully ready to put an estate plan in place, let’s get started.

You can set up a consultation appointment at our office in Charlotte, NC or Huntersville, NC if you give us a call at 704-944-3245. The number in Ashland, Kentucky is 606-324-5516, and the number in Florence, Kentucky is 859-372-6655.  Or you can fill out our contact form if you would rather send us a message.

 

 

  • Author
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Pamela Potter
Pamela Potter
Owner and founder of the Ashland, Kentucky based Potter Law Firm, Ms. Potter concentrates her practice in the area of estate planning, estate administration, and elder law. Mrs. Potter’s goal is to help her clients plan secure financial futures for themselves and their families. To achieve that goal, her firm offers a wide range of estate planning services, including wills, trusts, and powers of attorney in addition to probate, estate administration, elder law, and Medicaid Planning services.
Pamela Potter
Latest posts by Pamela Potter (see all)
  • 2022 Estate Tax Exclusion Has Been Set - December 6, 2021
  • An Overview of 2022 Medicare Cost Increases - November 24, 2021
  • Elder Financial Abuse Is a Looming Threat - November 22, 2021

Filed Under: Retirement Planning Tagged With: Elder Law, Retirement Planning

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About Pamela Potter

Owner and founder of the Ashland, Kentucky based Potter Law Firm, Ms. Potter concentrates her practice in the area of estate planning, estate administration, and elder law. Mrs. Potter’s goal is to help her clients plan secure financial futures for themselves and their families. To achieve that goal, her firm offers a wide range of estate planning services, including wills, trusts, and powers of attorney in addition to probate, estate administration, elder law, and Medicaid Planning services.

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There's a lot that goes into setting up a comprehensive estate plan, but with our FREE worksheet, you'll be one step closer to getting yourself and your family on the path to a secure and happy future.
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Overall The Potter Firm was very professional. They took what could of been a very complicated process and were able to break it down so it was a lot easier to understand. We are confident we now have made the right decisions in our estate planning. Good firm to work with.

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John Potter has been a real pleasure to work with. He is very knowledgeable and explains things in a very simplistic manner so the average person can understand how/why the laws are written. He is very attentive and asks questions in such a way that not only helps him understand your goals, but also helps you think about what type of goals and expectations you should be considering. Exemplary client service.

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