Even though Social Security as we know it didn't really arrive on the scene in America until 1935, there have been forms of it in one way or another in not only our early nation's history, but the world's history as well.
Indeed, even dating back to the ancient Greeks, where olive oil was considered to be reflective of your economic stability and security, humans have put great thought and care into developing systems to take care of one another.
Though olive oil may not provide much to us now, other than being a healthy dressing, it is reflective of one thing - types of economic security change and sometimes, those changes are significant.
Big changes are set to hit our country's Social Security program this year. Let's dive right into it with 5 of the biggest changes coming to social security in 2020.
Social Security Quick Stats (as of 2020)*(1)
- 64 million people receive benefits
- 62% of retired workers net at least half of their income from the benefit program
- To be eligible for social security, you must have paid into it for at least 10 years
- Highest 35 years of earnings are averaged and then divided by 12 to determined average indexed monthly earnings
- 9/10 people 65+ are receiving benefits
- Retiring early means a $2 reduction for every $1 of earned income over $18,240
- Wasn't originally designed to pay out as much as it does now
- Wasn't originally designed to be more than a supplement to an income
- Retirees are living 20+ years more on average now than when the program was implemented in 1935
- The Social Security Board began in 1935 as an "independent agency" of the federal government, thus not a part of a greater, cabinet-level organization. The Board became the Administration in 1939.
- There are only a fraction of contributors to the program now than there were in 1935 (2.6 workers per recipient vs 16 workers per recipient).
- As of 2010, the program started paying out more in benefits than it collected in revenues
- Trust fund reserves grew until this (2020) year
5 Changes to Social Security in 2020
1. COLA is increasing by 1.6%(*2)
The Cost-of-Living-Adjustment increased by 2.8% in 2019 and is slated to see another 1.6% increase this year. This increase is approximately $24 more per month for the average retired worker. It might not seem like very much, but COLA was only ever intended to keep up with inflation.
Whilst a raise to COLA might seem like a good thing, the sad reality is that it has utterly failed to keep up with real inflation for too long. In fact, according to the Senior Citizens League, American seniors purchasing power has fallen by 33% since 2000. That means that what $100 once bought in 2000 now only buys $67 worth of those same things in 2020.
Due to the fact we're living over 20 years longer than when the system was first brought into place in 1935, COLA just doesn't keep up with other real financial concerns that we have to handle in our golden years, such as extended medical care, retirement housing and possibly even debt.
2. Max annual payout is, too(*3)
In 2019, the maximum annual payout for benefits was $34,332 (or, $2,861 per month). 2020 sees an $1,800 annual increase to the maximum, bringing it to $36,132 (or $3,011 per month).
3. The earnings penalty cap has changed(*4)
If you continue to work whilst collecting benefits, you are only allowed to earn a certain amount before the government "claws back" on your benefits. This cap has changed in 2020, to $18,240 annually if you collect before you reach full retirement age. If you reach full retirement age this year, you'll be able to earn $48,600 annually.
4. An increase in disability income thresholds(*5)
Even though Social Security was initially designed as a supplement to retirement income, the program now also provides income for over 8 million disabled workers, and also over 1 million spouses & children of disabled workers. Beneficiaries are able to earn income and receive benefits, but there is a cap.
As of 2020, average disability recipients can earn $40 more per month before their benefits are stopped for the non-blind, or $70 more per month for the blind.
5. Full retirement age has increased(*6)
The normal retirement age to receive full benefits is 67 years for those born after 1959. Full retirement age is presently 66 years and 2 months for those born after 1955 and will slowly see an increase to 67 years for people born after 1960. The earliest you can claim benefits is at 62. That said, if you claim before your "full retirement age", you risk your payout being reduced permanently.
The bottom line? If you withdraw early, you'll lose money permanently. Conversely, if you wait past the full retirement age to, for example, 70 years old, you will receive over 30% higher annual payout than if you started taking benefits right at your full retirement age.
Special note: if you're a public servant, you will receive full benefits after a determined number of years in service, not your specific age.
Not olives, but...
The best way to guarantee your future is to put your retirement in your own hands. Afterall, social security was only ever meant to be a supplement. Let us help you capture your vision for your golden years and put a plan into action.
1. Publication No. 05-10024 ICN 454930 | Unit of Issue — Package of 25 January 2020 (Recycle prior editions) Understanding the Benefits
Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a broker-dealer, member FINRA/SIPC. Advisory services offered through Cambridge Investment Research, Inc., a Registered Investment Adviser. Custom Wealth Management and Cambridge are not affiliated.