Nov 6, 2020 3 min read

It has been announced that Social Security checks will go up 1.3% for 2021. The new rate will be effective in December for checks issued in January.

SS is one of the few retirement income sources that have a cost-of-living increase. This is one reason why you should try to maximize your SS income. A $1,000 benefit would receive an extra $13 a month, while a $1,500 benefit would get an extra $19.50 per month.

An announcement is expected in a couple of weeks that Part B Medicare premiums will go up to $153.30 per month next year. This is an $8.70 increase over this year. This will eat up part of the cost-of-living increase from Social Security. The maximum taxable earnings for SS will increase to $142,800. This means that self-employed people making this amount will pay $17,707.20 in payroll taxes. The 1.45% Medicare tax applies to all earned income above this level.

New thresholds for the earnings test for SS also were announced. Someone under full retirement age collecting Social Security is affect by this rule. If you receive more than $18,960 of earned income in 2021, you must give back one dollar for every two dollars above this threshold. In the year you reach full retirement age, you can earn up to $50,520 before your birthday.

Full retirement age is based on the year you were born and ranges between 66 and 67. Only earned income is included and not investment earnings.

Another factor affecting seniors is they have little control over interest rates. Rates are at record low levels. The Federal Reserve has said it expects to keep rates low until at least 2023 to deal with the pandemic.

Some of the investment vehicles that many older investors have traditionally used have not been preforming very well. Bank Certificates of Deposit are paying less than 1% for five years. Bond ladders are often not keeping up with inflation. Multi-year fixed annuities are paying 2.4% to 2.8 % for three to five years. These rates could change any day.

Many pension funds are struggling because of low interest rates, putting a lot of pressure on these investments. Low interest rates also may be forcing some seniors to take on more stock market risk or start taking SS sooner than planned. Both of these things could end up hurting retirement.

Sometimes the answer to making retirement better is to work a little longer. The pandemic has made the unemployment rate explode. There are still a lot of companies struggling as the virus continues to hurt the economy. Seniors may have to compete against younger workers if they consider staying in the workforce a little longer.

One thing people should try to avoid is tapping into their 401(k) early. The CARES Act created some relief in this area, but it would be best to avoid this if possible. Unemployed people are already not contributing to these plans and you need the biggest balance possible to enjoy retirement.

Gary Boatman is a Monessen-based certified financial planner and the author of “Your Financial Compass: Safe passage through the turbulent waters of taxes, income planning and market volatility.”

To submit columns on financial planning or investing, email Rick Shrum at rshrum@observer-reporter.com.