As if learning all about Social Security and Medicare wasn’t hard enough, each new year brings with it several changes. Well, 2021 is no different, regardless of the global pandemic and a messy presidential election. Don’t worry, we’re going to make things easy to understand in this short guide. To start, what’s happening with Medicare?
The industry was eagerly anticipating Medicare Parts A and B coinsurance amounts, deductibles, and premiums. Eventually, the CMS (Centers for Medicare and Medicaid Services) delivered back in November. For enrollees of Medicare, most premiums will jump by $3.90 to $148.50 this year. There were some concerns about the premium increase, but it was limited as a result of Congressional intervention; it was limited to 25% of normal increases.
Social Security COLA might only be 1.3% this year, but the tiny increase for Medicare Part B premiums has negated this impact. There’s now a ‘hold harmless’ provision included with Medicare, which means that the premium increase for Medicare can never exceed the same increase in Social Security benefit.
Unfortunately, somewhere between 5% and 10% of Medicare Part B participants face the IRMAA (Income-Related Monthly Adjustment Amount). For those retiring, financial professionals suggest appealing the IRMAA. Since you’re leaving the world of work, your income is set to decrease, and premiums shouldn’t be calculated using previous high earnings.
Elsewhere, there’s a $76 change in the amount beneficiaries pay as an inpatient deductible through Medicare Part A when visiting a hospital. In 2021, this amount is now $1,484. For beneficiaries in Medicare Part B, the annual deductible has jumped a small amount from $198 to $203.
Finally, Medicare Advantage participants received good news with a small decrease in average monthly plan premiums. In total, the average will fall to $21.
This year, the Social Security Administration revealed changes to SSI (Supplemental Security Income) and Social Security benefits. As a result, around 72 million people in America should experience a jump of 1.3%. In January, this increase will make its way to 64 million beneficiaries of Social Security. Meanwhile, a smaller number of 8 million should have seen this change to their SSI benefits on the last day of 2020.
What do these changes mean for Social Security benefits? The average for retired workers will rise to $2,596 for a couple and $1,543 for individuals. Other groups and limits include:
- Widowed mother of two children – $3,001
- Aged widower – $1,453
- Disabled workers – $1,277
When retiring at FRA, the most any worker can receive is set to $3,148 in a single month. Now that we’re in January, all beneficiaries should have received a notice from the Social Security Administration regarding COLA; the same is also true for representative payees and SSI recipients. If you haven’t received the notice, or if you’re unsure, your Social Security account online should contain everything you need.
In truth, there are a few different changes to note, and this includes the increase to earnings limits for anybody underneath the FRA; this is now $18,960. What if you earn over this amount? For every $2 over, the Social Security Administration deducts $1. If you’re expecting to reach FRA this year, the earnings limit is set to $50,520. This time, every $3 over the amount leads to a $1 deduction.
Currently, $137,700 is the earnings maximum with regard to Social Security tax. In 2021, the new maximum amount will be $142,800.
Another interesting change comes with earnings limits for those at FRA; in fact, it’s the lack of an earnings limit drawing attention. With this in mind, even those working can get Social Security if 2021 is the year they reach FRA.
As always, choosing when to claim is important for those reaching full retirement age or turning age 62. Some are eligible to claim at age 62 in 2021, but it could lock monthly benefits at 70% until death. Alternatively, delaying the start will boost monthly benefits each year. Beyond FRA, growth is even more significant because you receive the boost for waiting and a boost in line with the cost of living.
If you can afford it and have other sources of income, experts recommend delaying Social Security to enjoy larger monthly payments later in life. Early claiming is still the best option if you have health problems or can’t afford to wait.
We promised information on retirement plans, so this is where we’ll finish. To keep things simple, the 2020 ‘dollar limits’ are exactly the same this year. This applies to the 457(b), 401(k), and 403(b) for catch-up contributions and elective deferral contributions. The latter is set to $19,500, and the former (for over 50s) is $6,500.
How much can you contribute to an Individual Retirement Account? $6,000; this contribution limit applies to Roth IRAs and traditional IRAs. Meanwhile, there’s a $1,000 catch-up limit for over 50s to bring the total to $7,000.
High-deductible health plans and health savings accounts (HSAs) have also changed with limits for family coverage at $7,200 and limits for self-only plans at $3,600. While the minimum annual deductible isn’t changing for 2021, there is a slight adjustment to maximum annual out-of-pocket expense limits (for family coverage and self-only plans).