In 2019, about 64 million Americans will receive over one trillion dollars in Social Security benefits. The economy of the United States is always evolving, as well as its social security system. Below are some key changes to expect in 2020.
1. The full retirement age will increase.
Your full retirement age is the age where the Social Security Administration deems you eligible to receive 100% of your retirement benefit. Beginning in 2017, and ending in 2022, the full retirement age will increase by two months with each passing year. This means that in 2020, the full retirement age will be increased to 66 years and eight months.
If you choose to begin receiving benefits at any point between age 62 and a month prior to your full retirement age, you will accept a permanent reduction in your payout. If you wait until at least a month after your full retirement age to enroll for benefits, you could possibly receive a monthly payout that can exceed 100% benefit.
2. Becoming eligible for benefits will be more difficult.
You are not automatically entitled to receive Social Security benefits. In order to qualify for retired worker benefits, you will need to have earned 40 lifetime work credits (link) by the time you are eligible to enroll. You earn four lifetime work credits each year you work, so you will need to work at least 10 years to receive your full benefits. A lifetime work credit is accrued for every $1,320 earned, which means to get your maximum work credit in a year, you will need to make at least $5,280.
In 2020, this base number is scheduled to go up. Workers will need to earn $5,400 or more to get full annual work credit.
3. Social Security cost-of-living adjustment (COLA) will be 1.6%.
The Social Security Administration announced Thursday, October 10th, that the cost-of-living adjustment for 2020 will be 1.6%. The increased payment to Social Security beneficiaries will start on December 31, 2019. According to the Social Security Administration, the increase will amount to $24 a month for the average retired worker.
4. The end of two Social Security maximization strategies.
As part of the Bipartisan Budget Act of 2015, Congress made two major changes to Social Security claiming strategies that will be in effect in 2020. Section 831 of the law (entitled “Closure of Unintended Loopholes”) made these changes to close two complex loopholes that were used to maximize Social Security benefits primarily by married couples.
“File and Suspend” bonus ends.
Retirement benefits grow for each month you delay claiming benefits. A “loophole” in the system allowed a higher earning spouse who was working at full retirement age or older to apply for Social Security benefits, and then voluntarily suspend those benefits, enabling his or her lower-earning spouse to claim a spousal benefit (generally half of the earner’s benefit). The suspended benefits would then be able to earn 8% a year in delayed retirement credit until age 70, and in the meantime, the lower-earning spouse collects monthly spousal benefits.
Under the new law, you can still suspend your benefit payments at your full retirement age to be able to earn higher benefits, but during this suspension time, your spouse would not be able to claim spousal benefit. Those who reached full retirement age after April 29, 2019, were no longer allowed to “file and suspend” their benefits. An exception to this rule is if you are a divorced spouse, you can continue receiving a divorced spousal benefit even if your ex-spouse suspends his or her retirement benefit voluntarily.
Restricted claim for spousal benefits ends.
The second change that Congress implemented in the Bipartisan Budget Act of 2015, is the ending of the “restricted claim for spousal benefits” strategy. This strategy allows an individual to claim half of his or her spouse or ex-spouse’s (if you were married for at least 10 years, divorced and are currently single) full retirement age benefit amount while your own benefits continue to earn delayed retirement credits up until age 70 and then switch to your own maximum retirement benefit.
Those who were born in 1953 or earlier can still us this strategy. Individuals who were grandfathered into eligibility will turn 70 in 2020. Age 70 is the latest you can wait to start your Social Security benefits.
The main difference between “file suspend” and “restricted application” is who files and who gets the spousal benefit.
It is good practice to keep up to date with the changes in Social Security benefit rules and regulations. Being aware of how these changes can impact you financially will be beneficial in the planning and managing of your retirement income.
Helpful websites for more detailed information on Social Security benefits:
Carol Chaudet
(Last Updated 10/11/2019)