Every October, the Social Security Administration (SSA) announces its annual changes to the Social Security program for the coming year. Here are the Social Security changes that were announced in Oct. 2019 and took effect on Jan. 1, 2020, according to the SSA's annual fact sheet. Keep them in mind when you update your Social Security information.

Key Takeaways

  • Social Security recipients got a 1.6% raise for 2020, compared with the 2.8% hike beneficiaries received in 2019.
  • Maximum earnings subject to the Social Security tax also increased—from $132,900 a year to $137,700.
  • Other changes for 2020 included an increase in how much money working Social Security recipients can earn before their benefits are reduced and a slight rise in disability benefits.
  • Social Security tax rates remain the same for 2020—6.2% on employees and 12.4% on the self-employed.
  • It now takes $1,410 to earn a single Social Security credit, up $50 from 2019.

Beneficiaries Received a 1.6% Increase

For 2020, nearly 69 million Social Security recipients are seeing a 1.6% cost-of-living adjustment (COLA) to their monthly benefits.  The adjustment helps benefits keep pace with inflation and is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) as calculated by the Bureau of Labor Statistics (BLS). If the CPI-W increases more than 0.1% year-over-year between the third quarter of the previous year and the third quarter of the current year, Social Security will raise benefits by the same amount.

The 1.6% bump for 2020 compares with the previous year’s 2.8% COLA, which had been the largest increase since 2012. For the average Social Security recipient, the 1.6% raise amounts to just $24 per month on an average monthly payout of $1,503 vs. $1,479 in 2019.

Maximum Taxable Earnings Rose to $137,700

In 2019, employees were required to pay a 6.2% Social Security tax (with their employer matching that payment) on income up to $132,900. Any earnings above that amount were not subject to the tax. In 2020, the tax rate remains the same at 6.2% (12.4% for the self-employed), but the income cap has increased to $137,700.

The flip side is that as the taxable maximum income increases, so does the maximum amount of earnings used by the SSA to calculate retirement benefits. In 2019, the maximum monthly Social Security benefit for a worker retiring at full retirement age was $2,861. In 2020, the maximum benefit increases by $150 per month to $3,011.

Social Security recipients can receive a 32% larger payment each month if they claim benefits at age 70 rather than at regular full retirement.

Full Retirement Age Continues to Rise

The absolute earliest you can start claiming Social Security retirement benefits is age 62. However, claiming before your full (or normal) retirement age will result in the payout being permanently reduced. For those who turned 62 in 2019, the full retirement age was 66 and six months.

Under current law, retirement age is set to increase by two months each year until it hits 67. If you turn 62 in 2020, your full retirement age is 66 and eight months. Unless the law changes, anyone born in 1960 or later will not reach full retirement age until they are 67.

If you delay collecting Social Security past your full retirement age, you can collect more than your full, or normal, payout. In fact, if you put off claiming until age 70, you will receive a 32% higher annual payout than if you started receiving benefits at full retirement. After age 70, there is no further incentive for delaying. 

Earnings Limits for Recipients Were Increased

If you work while collecting Social Security benefits, all or part of your benefits may be temporarily withheld, depending on how much you earn. However, those income limits have increased slightly for 2020.

Prior to reaching full retirement age, you will be able to earn up to $18,240 in 2020. After that, $1 will be deducted from your payment for every $2 that exceeds the limit. The 2020 annual limit represents a $600 increase over the 2019 limit of $17,640. 

If you reach full retirement age in 2020, you will be able to earn $48,600, up $1,680 from the 2019 annual limit of $46,920. For every $3 you earn over the 2020 limit, your Social Security benefits will be reduced by $1, but that will only apply to money earned in the months prior to hitting full retirement age. Once you reach full retirement age, no benefits will be withheld if you continue working.

Social Security Disability Benefits Increased

Payments also increased slightly in 2020 for the nearly 10 million Americans who receive Social Security disability benefits. The legally blind now receive a maximum of $2,110 a month, an increase of $70 a month over 2019. For the non-blind, the maximum benefit increased $40 a month, to $1,260.

Credit Earning Threshold Goes Up

If you were born in 1929 or later, you must earn at least 40 credits (maximum of four per year) over your working life to qualify for Social Security benefits. The amount it takes to earn a single credit goes up slightly each year. For 2020 it will take $1,410 in earnings per credit, up $50 from 2019. The number of credits needed for disability depends on your age when you become disabled. 

Looking Ahead to 2035

According to the most recent Social Security and Medicare Boards of Trustees annual report, both trust funds will be depleted as of 2035. If these predictions hold, beginning in 2035, beneficiaries will receive about three-quarters (75%) of their scheduled benefit until at least 2093. The report concludes by tasking lawmakers with enacting legislation to address these financial challenges "sooner rather than later."