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2020 Social Security COLA

2020 Social Security COLA

November 12, 2019
On Thursday, October 10th, the Social Security Administration announced that the annual Cost of Living Adjustment (COLA) for benefits paid and wages subject to payroll taxes will increase by 1.6% in 2020.  This is more than a percentage point lower than the 2.8% increase we experienced in 2019, and is the smallest annual increase since 2017, when the COLA was just 0.3%.  The COLA will go into effect for Social Security benefits being paid in January of 2020.
For our clients who are still working, the COLA increases the amount of your earnings that are subject to FICA taxes, which fund both Social Security and Medicare.  Employers and employees each pay 7.65% of wages to fund Social Security and Medicare (self-employed individuals pay both the employer and employee share).  The 2020 COLA will increase the maximum amount of wages subject to the 6.2% portion of the FICA tax that funds Social Security from $132,900 in 2019 to $137,700 in 2020.
The remaining 1.45% of the FICA tax is used to fund Medicare and applies to all earnings, even those above the Social Security limit of $137,700.  Married couples filing jointly who make in excess of $250,000 and individuals who earn more than $200,000 pay an additional 0.09% in Medicare taxes.
For our clients who are retired, according to the Social Security Administration, the average retirement benefit will increase by $24, from $1,479 per month to $1,503 per month.  The 1.6% COLA adjustment also means that the maximum retirement benefit for someone who retires at full retirement age (age 66 for those born between 1943-1954) will increase from $2,861 to $3,011.
Opting to take Social Security before reaching full retirement age results in a reduced benefit for the rest of the recipients' life, while waiting to take benefits until age 70 allows benefits to earn 8% per year for every year taking benefits is postponed.
We know that deciding when to take one's Social Security benefit is an important decision to make for many of our clients as they work towards a successful retirement.  In many instances, there is not a one-size-fits-all rule for when it is best to elect to begin your benefits, but rather this decision should be made considering your complete financial picture.  If you have any questions regarding the impact of the 2020 Social Security Cost of Living Adjustment, or when it makes sense for you to elect to receive your benefits, please feel free to contact our office.  We always stand ready to help you make an informed decision and assist you as we all "Move Life Forward."