Social Security and Supplemental Security Income (SSI) benefits will increase 1.3% in 2021, the Social Security Administration announced today.
The cost-of-living adjustment (COLA) will begin with benefits payable to more than 64 million Social Security beneficiaries in January 2021. The Social Security Act ties the annual COLA to the increase in the Consumer Price Index (CPI) as determined by the Department of Labor (DOL)’s Bureau of Labor Statistics.
In addition, based on the increase in average wages, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $142,800 from $137,700. The IRS uses the Social Security Administration’s taxable maximum to determine the taxable wage base for permitted disparity in defined contribution (DC) plan contributions. Permitted disparity allows for larger contributions or benefits with respect to compensation exceeding the Social Security wage base.
For Social Security beneficiaries receiving Medicare, Social Security will not be able to compute their new benefit amount until after the Medicare premium amounts for 2021 are announced.
According to the Social Security Administration’s website, Social Security will typically replace about 40% of an employee’s pre-retirement income after retirement. It explains that this will be lower for people in the upper income brackets and higher for people in the lower income brackets.