It seems many people we talk to tend to believe that when they reach retirement, Social Security will be dried up. Behind the scenes, the Social Security Administration (SSA) are adjusting the program to get this under control. To help you understand these changes, here is a reminder of how the SS benefits are funded. The main source of funding for Social Security benefits is income from payroll taxes. There are also two trusts under the Social Security umbrella, the Old-Age and Survivors Insurance (OASI) Trust Fund (retirement benefits) and the Disability Insurance Trust Fund. As mentioned, the main source of funding for the programs is the payroll tax. Employers and employees share the burden, each paying 7.65% up to wages of $137,700 in 2020. (For those interested in the details, the OASI trust receives 10.6% of the payroll tax share, with Disability Insurance receiving 1.8%. The remaining 2.9% goes to Hospital Insurance, which pays for Medicare Part A). The tax rate and the allocation of taxes to the trust funds have varied over time.

For 2020, here are some positive takeaways.

  • For 2020, Social Security recipients got a 1.6% raise, compared with the 2.8% hike beneficiaries received in 2019.

  • Full retirement age continues to rise.

    • 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 were increased for recipients

    • 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.

  • Social Security tax rates remain the same for 2020—6.2% on employees and 12.4% on the self-employed.

No one can predict the market, and we can only make estimated projections as to what will happen in the future. In light of recent Covid-19 economic affects, these 2020 changes and benefits are still in place and available to you. If you are unsure of when you should collect your Social Security, reach out to a Financial Advisor to start a conversation. Take steps to secure your retirement plan. It’s imperative to work collaboratively to put in place a retirement plan best fit to your needs which outline both your long-term and short-term goals.


Nicholas E. Fischer

Financial Advisor

Direct: 585.340.2200