6 Dreadful Changes Coming to Social Security in 2020
The retirement crush has arrived. The massive baby boomer generation is reaching retirement age at a rate of about 10,000 people per day, and that’s stretching the limits of Social Security, America’s most important social safety net for people of retirement age. Over the past decade, the U.S. population ages 65 and up has increased by 50 million people, a 34% jump.
This retirement population boom has forced the government to rethink Social Security to increase its longevity and solvency. Here are six big changes coming to the program in 2020, per InvestmentNews:
Dipping Into the Trust Fund
In 2020, Social Security will begin paying out more in benefits than it receives in revenue for the first time since the Social Security trust funds were established in 1983, according to the latest Social Security and Medicare Trustees report.
Unless Congress acts, the current $2.8 trillion in excess trust fund revenue accumulated over the past 35 years will be exhausted by 2034, leaving Social Security able to pay only 77% of promised benefits from ongoing FICA taxes.
Smaller Social Security COLA
Due to persistent low inflation, the annual Social Security cost-of-living adjustment for 2020 is only 1.6% — over a full percentage point below this year’s 2.8% COLA.
With an average COLA of just 1.4% over the past decade, Social Security benefits have lost one-third of their buying power since 2000 as many of the goods and services purchased by typical retirees, including housing costs and health care, have increased several times faster than Social Security COLAs during that period.
More Benefits Will Be Taxed
Even with a meager COLA in 2020, higher benefits mean more retirees will be subject to income taxes on at least a portion of their Social Security benefits. When taxes on Social Security benefits were first imposed in 1983, the tax affected only about 10% of senior households, according to an analysis by The Senior Citizens League.
Last year, nearly half of older households paid taxes on a portion of their Social Security benefits. Social Security benefits are taxable once combined income exceeds $25,000 for individuals and $34,000 for married couples — thresholds that have never been indexed for inflation.
Full Retirement Age Increases
The same legislation that permitted taxation of Social Security benefits also instituted a gradual increase in the full retirement age from 65 to 67. People who turn 62 in 2020 will still be eligible to claim reduced Social Security benefits, but they will have to wait they’re until 66 and 8 months to claim their full retirement age benefit amount. For those born in 1960 or later, the full retirement age increases to 67.
End of File-And-Suspend Bonus
In 2015, Congress made two major changes to Social Security claiming strategies, one of which involved the “file-and-suspend” bonus. People who reached full retirement age after April 29, 2016, were no longer allowed to “file and suspend” their benefits, triggering payments for eligible family members while their own benefits continued to grow by 8% per year up to age 70. The last batch of people who filed and suspended by that April 29, 2016, deadline will turn 70, the age at which their Social Security benefits automatically begin, in 2020.
Spousal Social Security Benefit Strategy Disappears
The second change that Congress implemented in 2015 prevents people who reach full retirement age in 2020 or later from filing a restricted claim for spousal benefits. However, people who were born in 1953 or earlier can still use this strategy, which allows them to claim half of their spouse’s or ex-spouse’s full retirement age benefit amount while their own benefits continue to earn delayed retirement credits up until age 70. At that point, they can switch to their own maximum retirement benefit.
Whatever age and stage in life you’re at, you should visit ssa.gov to learn more about the Social Security program and exactly what it will mean for your retirement. You also should familiarize yourself with what politicians are saying about Social Security and what possible cuts or bumps some of them are planning, and then get out and vote for your best interests in 2020.
In January of 2020, more changes are coming based on the national average wage index, including the maximum amount of earnings that are subject to the Social Security payroll tax, as well as the retirement earnings test exempt amount.
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