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What the Social Security COLA for 2020 Means For You

Emily Brandon

Social Security payments will grow by 1.6% in 2020. The program will also be adjusted in several important ways that could affect the Social Security payments you receive or how much you pay into the system.

Get ready for these Social Security changes coming in 2020:

-- Social Security payments will increase by 1.6%.

-- The earnings subject to the Social Security tax will climb to $137,700.

-- Social Security beneficiaries age 65 and younger can earn up to $18,240 before their benefit is temporarily withheld.

-- The full retirement age will increase to 66 and 8 months for those born in 1958.

Here's a look at how much more you can expect from Social Security in 2020 and other ways the program will be tweaked in the coming year.

Social Security Payments Will Increase

The average Social Security benefit for retired workers is expected to climb by $24 to $1,503 per month as a result of the 2020 cost-of-living adjustment. Married couples in which both spouses receive benefits will see an estimated $40 increase to an average payment of $2,531 per month in 2020.

"This increase will show up first in the January payment," says William Reichenstein, a Baylor University professor emeritus and principal at Social Security Solutions Inc. The maximum possible Social Security benefit for someone who retires at age 66 will be $3,011 in 2020, up $150 from 2019.

Social Security payments are adjusted each year to keep pace with inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers. The 1.6% Social Security cost-of-living adjustment for 2020 is down from 2.8% in 2019.

Jim Blankenship, a certified financial planner for Blankenship Financial Planning in New Berlin, Illinois, and author of "A Social Security Owner's Manual," says, "This is less than the 2018 and 2019 COLAs, but considerably more than the 2016 and 2017 COLAs." Previous Social Security benefit increases have ranged from zero in 2010, 2011 and 2016 to 14.3% in 1980.

The Social Security Administration will post personalized COLA notices online beginning in December 2019. You can view the benefit amount you will receive next year in the message center of your my Social Security account. Part or all of your cost-of-living adjustment could be used to pay for Medicare premiums.

[See: 10 Ways to Increase Your Social Security Payments.]

A Higher Social Security Tax Cap

The maximum amount of earnings subject to Social Security tax will increase by $4,800 to $137,700 in 2020. Workers pay 6.2% of their earnings into the Social Security system until their income exceeds the taxable maximum.

"You'll pay Social Security taxes on all earnings up to the cap," says Andy Landis, author of "Social Security: The Inside Story." "You don't pay Social Security tax on earnings over the cap."

Those who earn more than $137,700 in 2020 will notice a bump in their paychecks once their earnings have surpassed the taxable maximum and they no longer have Social Security tax withheld from their salary.

[Read: How Much You Will Get From Social Security.]

Social Security Earnings Limits Climb

Social Security beneficiaries who continue to work will be able to earn $600 more in 2020 before part of their Social Security benefit is temporarily withheld. Social Security recipients age 65 and younger can earn up to $18,240 in 2020 before a benefit dollar is withheld for every $2 earned above the limit. In the year you turn your full retirement age, the Social Security earnings limit climbs to $48,600, up $1,680 from 2019, and the penalty declines to $1 withheld for every $3 in excess earnings.

"Only work income -- wages from employment or net gain from self-employment -- count," Landis says. "Other income, like interest, dividends, pensions, never affects your Social Security."

Once you turn your full retirement age, there is no penalty for working and collecting Social Security benefits at the same time, and your benefit is recalculated to give you credit for your continued earnings and any benefits that were withheld in the past.

[See: 10 Social Security Rules Everyone Should Know.]

An Older Social Security Full Retirement Age

People who will turn 62 in 2020 will need to wait until an older retirement age than existing Social Security beneficiaries in order to claim their full retirement benefit. The full retirement age for those born in 1958 is 66 and 8 months, two months older than the full retirement age of 66 and 6 months for those born in 1957. The full retirement age increases in two-month increments for those born between 1955 and 1959 until it reaches age 67 for everyone born in 1960 or later.

Workers who claim Social Security before their full retirement age receive reduced payments.

"They can still file as early as age 62, but the reduction for taking benefits prior to full retirement age is greater," says Jim Blair, a former Social Security administrator and lead consultant at Premier Social Security Consulting in Cincinnati.

Those with an older full retirement age also have less opportunity to increase their Social Security payments via delayed claiming.



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