Last Week’s Question of the Week: The SECURE ACT changes the age that you must first begin to take out Required Minimum Distributions (RMD). Previously the age was 70.5, what is the new age beginning in 2020?
ANSWER: You now must begin taking RMDs at age 72.
HOST: Last week you discussed the passing of the Secure Act which brings about some important changes, today I know you are helping us to understand some possible changes with social security in 2020?
KLAAS FINANCIAL: Yes, so we do devote a lot of our radio shows to covering Social Security because it remains as a cornerstone for retirement income for many people. Every year the Social Security Administration usually makes some adjustments and we just like to keep everyone up to date:
Increase to monthly check:
If you are receiving Social Security, you can expect a modest increase to your check this year. This is a bump of 1.6% for 2020 which is less than the 2.8% boost retirees received in 2019. It is in line, however, with the average 1.4% cost-of-living adjustments over the past decade. The changes are calculated based on inflation.
In dollar terms, this increase equates to average of $24 per recipient or $288 per year. The average amount of income currently being received as a social security benefit is $1503 for a single individual, and $2531 for a couple both receiving benefits. The maximum SS benefit being paid out currently $3790 to a 70-year-old today.
Maximum amount of earnings subject to Social Security payroll tax: Up $4,800
So, if you are NOT retired, this will be important to know: Social Security gets funded primarily from the payroll taxes that current workers’ pay.
Employees have 6.2% of their pay withheld from their paychecks to go toward Social Security, and employers pay a matching 6.2% amount out of their own pockets. Those who’re self-employed end up having to pay the full 12.4% amount themselves.
However, there’s a maximum amount on which this tax gets imposed. This figure, called the Social Security wage base, usually rises with inflation each year.
For 2020, the Social Security wage base is $137,700. That’s $4,800 greater than it was in 2019. Some have advocated removing the limit entirely to give Social Security more funding. At least for now, though, there’re no concrete plans to do so, and this number’s very unlikely to change throughout 2020.
Earning Social Security credits in 2020: Up $50
In order to qualify for Social Security, you have to earn a certain number of credits over your lifetime. For regular retirement benefits, you’ll need 40 credits. And because you can only earn a maximum of four credits each year, it’ll take most people 10 years to accumulate the credits they need in order to collect Social Security checks when they retire.
So how do you earn credits? It takes a certain amount of income from wages, salaries, or other work sources to get a credit, and that amount changes each year. In 2020, you’ll earn a credit for every $1,410 in earned income you have, up to a maximum of $5,640. At that point, you’ll have the four-credit maximum for 2020. The $1,410 per credit number is $50 higher than it was in 2019.
HOST: I know that you can first begin collecting your Social Security benefit at 62 right?
KLAAS FINANCIAL: That is still true. However, that is still the EARLIEST you can collect. The term “full retirement age” (FRA) generally refers to the age you must reach to be eligible to receive full benefits from Social Security. Any age at which you start collecting before your “full retirement age” is considered “early retirement.” The youngest age at which anyone can begin collecting Social Security retirement benefits is age 62.
Early retirees (prior to their FRA) will receive a reduced benefit. That means, if you decided to retire early by Social Security Administration (SSA) standards, the monthly payouts you receive will be lower than those of older, full-age retirees – to compensate for the fact that you’re getting them sooner and will presumably be getting them for a longer period of time.
For individuals born prior to 1938, full retirement age is 65, while those born between 1938 and 1960 are on a graduated scale up to age 67.
What we try to stress on this show is that ideally you will wait for your FULL RETIREMENT AGE (FRA) so that you can get a larger benefit that won’t be reduced if you were to work. If you are turning 62 in 2020 (that means you were born in 1958) although you could start collecting your SS benefit this year, your FRA is not until you turn 66 and 8 months, which would give you the highest possible benefit, OR unless you wait an additional 3 years 4 months, which would add on an additional 8% per year for delayed retirement credits.
How do you find out what your Full Retirement Age is?
Go to SSA.GOV and establish an account and you will see what your future benefit looks like and what your FRA is.
HOST: What about if I still am working part-time in retirement?
KLAAS FINANCIAL: Great question! If you are thinking about retiring this year, BEFORE you have reached your FRA, you need to know that if you decide to work part-time that Social Security will only allow you to earn $18,240 per year in 2020 without your benefit being affected. If you earn more than the limit, one dollar in benefits will be withheld for every $2 in earnings above the limit. If you have already REACHED your FRA then there is no longer a limit, and your SS benefit is not affected.
If you are retiring this year, and it is also the year you are turning your full retirement age, the earnings limit will be $48,600 before the agency will deduct $1 for every $3 you earn until the month you reach full retirement age. They will only count the earnings before the month you reach your full retirement age.
Understand that your social security is taxable: If your income as a married couple is more than $44,000 as you collect your social security benefit (or $34,000 as an individual) understand that 85% of your SS benefits will be federally taxable.
HOST: If I am thinking about starting my benefit this year, how and when would I apply?
KLAAS FINANCIAL: How to apply: You can file for Retirement or Spousal Benefits online or in person.
Call SS at 1-800-772-1213 (TTY 1-800-325-0778) between 7 a.m. and 7 p.m., Monday through Friday to make an appointment; or contact your local Social Security office.
When to apply: Social Security Retirement – You may apply 3 months before you turn age 62 or 4 months before you want your benefits to start.
Once you have applied, it could take up to three months to receive your first benefit payment. Social Security benefits are paid monthly, starting in the month after the birthday. Generally, the day of the month you receive your benefit depends on the birth date of the person on whose record you are collecting.
Catch C.J. Klaas and Maleeah Cuevas on Money in Motion every Thursday on Madison's 1310 WIBA from 8:05-8:35am.