Every year brings something new to the Social Security system if only a slight inflation adjustment and 2020 is no different. The Social Security Administration announced in October that benefits would increase by 1.6 percent in 2020.
For a recipient earning $1,479, the average monthly benefit among all retired workers, checks will increase to about $1,503 per month. If my math is correct, that equates to an additional $24/month. Please don’t plan to spend all of it too soon. For Social Security calculations, the standard CPI is inferior for this purpose, as the CPI-E, which measures inflation for Seniors, should actually be used. It is estimated that the CPI-E is 0.2% higher annually than the Standard CPI. Not that the 0.2% would be a financial windfall, but every little bit helps. As you know, cost-of-living adjustments, which began in 1975, are implemented in order to counteract the effects of inflation.
The maximum Social Security benefit for a worker retiring at full retirement age will rise to $3,011 per month in 2020, from $2,861 per month last year. There is a retirement earnings test that is applied to those who claim Social Security while still working. The test takes two main factors into account: your age and income.
In the first case, the retirement earnings test withholds benefits before you reach full retirement age if your income exceeds a certain threshold – and then adds them back once you reach full retirement age. That threshold amount for 2020 is $18,240.
A higher threshold applies to those will reach full retirement age during the year. For 2020 it is $48,600. The program withholds $1 in benefits for every $2 of earnings in excess of the lower exemption amount, and $1 for every $3 in excess of the higher exemption amount.
What you shouldn’t fear is Social Security running out or money. It is a fallacy to believe that there exists a “lockbox” that contains all of our contributions. The US enjoys the benefits of having a fiat currency and all of the federal debt held in U.S. dollars. We absolutely have the ability to meet all future calls on Social Security benefits. What we should fear is our august Congress not understanding this concept and acting rashly to address the impending “crisis”. More to come on this issue.