Social Security • August 14th, 2020

Social Security Changes 2020

Michael Schultheiss

Key Takeaways
  • Social Security beneficiaries are receiving a 1.6% cost-of-living adjustment (COLA).
  • Full retirement age has increased.
  • Maximum taxable earnings and earnings limits have been increased.

Social Security typically undergoes some changes from year to year, and 2020 is no exception. Beneficiaries are receiving a cost-of-living adjustment (COLA). The full retirement age continues to increase for those turning 62, in keeping with a planned schedule that will ultimately raise it to 67. Maximum taxable earnings subject to Social Security tax have also been increased.

Whether or not you are eligible for Social Security yet, it is a good idea to factor the 2020 Social Security changes into your retirement planning. Talk with a Certified Financial Planner® to see what your options are, and when you might want to consider taking Social Security benefits.

Beneficiaries Received a 1.6% Increase

The cost-of-living adjustment (COLA) for 2020 is 1.6%. The purpose of these COLAs is to help ensure Social Security benefits keep pace with inflation. The Bureau of Labor Statistics (BLS) uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to calculate the COLA for a given year.

The SSA issues a COLA in the event that the CPI-W increases over 0.1% year over year between the third quarter of the previous year and the third quarter of the current year. The raise, in this case the 2020 increase, is the same amount as the increase in the CPI-W, over 0.1%.

The Social Security increase of 2020, the 1.6% COLA, compares with 2019’s 2.8%, the largest increase since 2012. This comes to an average monthly payout of $1,503 in 2020, compared with $1,479 in 2019.

Increase to the Full Retirement Age

The earliest age at which you can claim Social Security benefits is still 62. Claiming your Social Security benefits at age 62, however, will result in a permanent reduction in the payout. To avoid the reduction in the payout, you need to wait to retire and start collecting Social Security until you reach full retirement age.

Your full retirement age depends on when you were born. For people born from 1943-1954, full retirement age is 66. Full retirement age increases in two-month increments from there.

For example, if you turned 62 in 2019, your full retirement age will be 66 years and 6 months. If you turn 62 this year, 2020, your full retirement age is 66 years and 8 months. For those turning 62 next year, full retirement age is 66 years, 10 months, and for those turning 62 in 2022 or later, full retirement age is 67 years.

You also have the option of waiting beyond full retirement age to collect benefits. If you wait until you are 70, you can receive up to a 32% higher annual payout than if you started taking benefits as soon as you hit full retirement. After age 70, however, there are no further benefits awarded for delaying retirement so it’s in your best interest to claim you benefits then if you haven’t previously.

Maximum Taxable Earnings Rose to $137,700

In 2020, the Social Security tax limit has increased to $137,700.

The Social Security tax in 2019 was applied to income up to $132,900. The 12.4% Social Security tax is split between 6.2% handled by employees and employers respectively. Self-employed persons are required to pay the full tax.

While there has been an increase in Social Security taxable income, the maximum amount of earnings the SSA uses to calculate retirement benefits has also increased. While the maximum Social Security benefit for a worker at full retirement age retiring last year was $2,861, in 2020 the maximum benefit has been increased by $150 to $3,011.

Earnings Limits Were Increased

Many people continue to work while collecting Social Security benefits. If you opt to continue to work while receiving Social Security benefits prior to reaching your full retirement age, all or part of your benefits may be temporarily withheld, depending on how much you earn. In 2020, however, the income limits have been increased.

Before reaching full retirement age, the amount of income you can earn without having your Social Security benefits reduced is $18,240.00. For every $2.00 in income you earn above that limit, $1.00 of your benefits will be temporarily withheld. The current 2020 limit is an increase of $600 over the 2019 limit of $17,640.

Once you reach full retirement age, the income limit for that year goes up considerably. In 2019, the limit was $46,920 for a person reaching full retirement age that year. In 2020, the limit is $48,600. For every $3.00 in income over the limit, your benefits will be reduced by $1.00, but this will only apply to the money you earned in the months prior to hitting full retirement age.

After you have reached full retirement age, no more of your benefits will be withheld if you continue to work.

Social Security Disability Benefits Increased

Nearly 10 million Americans receive Social Security disability benefits. These payments were increased slightly in 2020. People who are legally blind received an increase of $70 a month over 2019, to a maximum of $2,110. For those who are not blind, the benefit has increased $40 a month, up to $1,260.

Credit Earning Threshold Goes Up

Qualifying for Social Security benefits requires you to accumulate at least 40 credits, and you can accumulate 4 per year. Every year, the amount of earnings it takes to qualify for a credit is increased slightly. In 2020 it now takes $1,410 in earnings to earn one credit, up $50 from 2019. The amount of credits needed to qualify for disability benefits depends on the age at which you become disabled.

Final Thoughts

Whether or not you are eligible to start collecting Social Security benefits, the 2020 Social Security changes are a good example of how the program can and does change from year to year. The degree to which the changes may affect you will depend on a number of factors, including your age, your income, and when you take Social Security benefits.

Talking to a Certified Financial Planner® is an excellent way to get a picture of your finances. Wherever you are in the retirement planning process, a Certified Financial Planner® can help you to see your retirement options clearly.


Michael Schultheiss

Michael Schultheiss is a freelance copywriter of long-form content and other marketing communications (B2B and B2C) in the financial services and FinTech niches. In copywriting, he looks for hungry crowds. Other interests include health, fitness, and reading and writing fiction.