A New Decade


Seems like only yesterday we were all worried about Y2K, hard to believe it’s been 20 years!  Time goes fast when you’re having fun!

What’s New in 2020

  • Amount of Earnings Subject to the FICA tax – in 2020 it will be $137,700 – in 2000 it was $76,200 the good news is that the percentage tax amount remained constant at 6.2% but the amount withheld will be $8,537 vs $4,724 in 2000. Self employed however will have a maximum withholding tax in 2020 of $17,074.
  • There was a 1.6% COLA increase for 2020, down from 2.8% in 2019. Avg COLA since 1975 (annual automatic calculation) has been 2.6%.
  • The Maximum Social Security benefit (FRA) for those born in 1958 (62 this year) will be $3,142.70 up from $3,030.50 for those born in 1957 a 3.7% increase. In 2000 the maximum benefit was $1,435 at age 65 (FRA), but remember earnings subject to FICA was much lower than it is today (see 1st bullet).
  • The Earnings Test (for those who claim prior to FRA) increases to $18,240 up from $17,640 in 2019. In the year you reach your FRA, you can earn $48,600 up from $46,920.  Refresher you lose $1 in benefits for every $2 you earn above the limit, in the year you reach your FRA you lose $1 for every $3 you earn (only up to your birthday, then you can make as much as you want). NOTE TO SELF – If you are going to continue working, thou shall not file for benefits!
  • Also remember that the FRA changes, so in the example above the individual born in 1958 will not reach FRA until they are 66 & 8 months.

2020 will be the first year since 1982 where Social Security will payout more than it takes in.  Projected shortfall between 2035 and 2093 will be $13.9 Trillion and the current $2.9 Trillion surplus will be exhausted in 2035.  Without changes individuals will see a 23% reduction in benefits.

60% of individuals will claim benefits prior to age 66 (a little less than 40% will claim @ age 62) less than 4% will wait until their 70th birthday before filing.  Primary reason people will claim early?  FEAR our politicians will not fix Social Security and benefits will be reduced.  No one knows exactly what changes are coming, but I’d bet you’ll see a combination of;

  • Increase in the amount of earnings subject to FICA taxes (Tax the Rich, since only 6% on people maker more than $137,700)
  • Increase the tax rate from the current 6.2% (hasn’t changed since 1991)
  • Increase the FRA (Full Retirement Age) gradually for those currently below 50 to age 70

The recently passed SECURE ACT does not affect Social Security rules.  I had a CPA ask me last week “since RMD are changing to 72 from 70 ½ does that mean individuals can defer Social Security until 72 and earn delayed credits of 8% per year?”  NO

I found it interesting that the SECURE ACT does allow the use of annuities within qualified plans in order to promote guaranteed lifetime income.   401k’s also must start showing how much lifetime income a recipient might receive from their current 401k balance.  Both of these changes are promoting the importance of Lifetime Income.  What better annuity can an individual have than to postpone Social Security benefits until age 70?  Remember whatever your check is at age 62 it is DOUBLE at age 70 and the surviving spouse inherits the greater of the two benefits upon the death of the other spouse!

Let’s have a GREAT year, and never hesitate reaching out, if you think I can be of assistance,

Dave Zander, CFP®