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Important Changes To Social Security. Here's What You Need to Know

Retirement Funding Insights Taxes

In October, the Social Security Administration released important facts and figures for 2021 - including cost-of-living adjustments (COLA) for retirees and tax changes for those who are currently employed.

The Good? Social Security Benefits Are Increasing

If you are receiving Social Security benefits, you will see a 1.3 percent COLA increase in 2021. This will positively impact around 70 million Americans - including 8 million SSI beneficiaries.1  

For the average retiree receiving Social Security benefits in January 2021, this will translate to a roughly $20 increase in monthly benefits - $1,543 up from $1,523. For couples, both receiving benefits, the average will increase to $2,596 from $2,563.1  

One thing to note, this year’s COLA increase is lower than the previous two years - but, a cost-of-living adjustment is never guaranteed in the first place. In 2009, 2010, there was no COLA. And in 2016, the COLA was a mere 0.3 percent - substantially lower than the 2.8 percent increase we saw in 2018.2 

The Bad? Taxes Are Increasing Too (For Some)

If you're still working, the amount of earnings subject to Social Security tax has increased 3.7 percent from $137,700 in 2020 to a maximum of $142,800 in 2021.1 Employees and their employers will each continue to pay 6.2 percent of applicable earnings toward the 7.65 percent combined Social Security and Medicare rate.1 The 3.7 percent increase in applicable income is only in reference to the Social Security portion of the combined tax rate. Self-employed individuals will still be responsible for paying the full 15.3 percent of the Social Security and Medicare tax rate.1    

The Need To Know? Earning Limits For Retirees

If you are not at full retirement age and are receiving a paycheck while also receiving SS benefits, you have to be aware of 2021’s earning limit changes. 

Currently, the full retirement age is considered to be 66, if you were born between 1943 and 1954. Below is a chart provided by the SSA in regards to full retirement age:3

Year of Birth

Full Retirement Age
66 & 2 months 

66 & 4 months

66 & 6 months 
66 & 8 months 
66 & 10 months 
1960 & later 

If you are receiving benefits and have not yet reached full retirement age, you will be docked $1 in benefits for every $2 earned above $18,960 (or $1,580 per month) in 2021. This is an increase of $720 from 2020's $18,240 per year limit.

It’s important to note that this limit increases substantially if you will be reaching full retirement age this year. For 2020, that income limit is $48,600 per year or $4,050 per month. In 2021, you will see the limit increase to $50,520 per year or $4,210 per month. Applicable income earned above this amount will be withheld at a rate of $1 dollar for every $3 earned above the limit.

Beginning in the month you reach full retirement age, you will no longer be subject to earning limits.

Keeping track of changes in tax rates and future income is an important part of having a well-established retirement plan. If you’re wondering how these changes will affect your own financial standings, reach out to us and we can help you work through those questions.

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About the Author 

James M. Comblo , CFF
is a Partner and the Chief Compliance Officer at FSC Wealth Advisors. His greatest passion in the financial services industry is helping clients accomplish their dreams both with investments and their personal lives. To learn more about him click here.


  1. https://www.ssa.gov/news/press/releases/2020/#10-2020-1
  2. https://www.ssa.gov/oact/cola/colaseries.html
  3. https://www.ssa.gov/pubs/EN-05-10035.pdf