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Plan now for the coming changes in Social Security and Medicare.

The end of the year is almost here. As difficult as it may be with all the COVID-19 regulations, it’s important to maintain your financial awareness. A good place to start is by looking at some of the changes coming in 2021.

For retirees, both Social Security and Medicare have some subtle changes. Premiums for Medicare Part B, which covers outpatient care and medical equipment, is increasing by 2.7 percent. In 2020, most people were in the bracket that paid $144.60. That 2.7 percent bump equates to $3.90, bringing the 2021 total to $148.50.

The Part B deductible is also increasing. It was $198 in 2020 and increases to $203 next year. Higher wage earners are likely familiar with the Income Related Monthly Adjustment Amount (IRMAA). It means you pay more for Medicare. For example, according to the IRMAA table, Part B goes from $289 to $297 for a married couple with earnings of $175,000 or more on their 2019 tax return.

There is some positive news. If you’re a Social Security recipient your monthly increase will be 1.3 percent. That’s not an especially significant number, but simple math shows that the larger your base benefit the greater your pay raise.

For example, 1.3 percent of an $18,000 benefit is $230. It’s more than $300 for a $24,000 benefit. Obviously when an increase is announced, the larger your benefit, the greater your increase will be. If you’re not yet collecting Social Security, it’s a good idea to know the math to help decide when to begin receiving your benefits.

For those who are in the workforce, the retirement rules remain pretty much the same as 2020. The maximum contribution for 401(k) programs continues to be $19,500. If you’re 50 or older in 2021, you’re allowed additional “catch-up” contribution of $6,500.

The IRA maximum for 2021 continues at $6,000 with an additional “catch-up” of $1,000. What have changed with IRAs are the income eligibility caps. They’ve increased for both traditional and Roth IRA’s. So if you were ineligible in 2020 because your income was too high, you should revisit the complex tax tables. You might be eligible in 2021.

Everyone in the workforce is contributing to Social Security. The percentage of your income allocated to Social Security continues to be 6.2 percent. Payroll stubs often indicate 7.65 percent. That’s because the 1.45 percent for Medicare is included.

Keep in mind that your employer matches your Social Security deposit. So the self employed, many who are struggling, pay a whopping 12.4 percent of their income into Social Security.

The cap on the amount of income that’s taxed for Social Security increases by $5,100 in 2021. Next year the total amount of income subject to Social Security taxes jumps from the current $137,700 to $142,800. 

If you do the math, that’s an increase of $316 for a total of $8,853 in Social Security taxes for those with an income of $142,800 or more. And it’s double that if you’re self-employed. Experts estimate that about 10 million people will be paying that additional $316 next year.

Everyone is tired of the stress of COVID-19, so it’s easy to push some financial concerns to the back burner. I encourage you to maintain your focus and keep you finances up to speed.

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E-mail your questions to kenmorris@lifetimeplanning.com

 Ken is a registered representative of LPL Financial. Securities and financial planning offered through LPL, a Registered Investment Advisor, member FINRA/SIPC. Ken is Vice-President of the Society for Lifetime Planning in Troy. All opinions expressed are those of Ken Morris. LPL and Society for Lifetime Planning are independent companies. Investing involves risk including loss of principal. No strategy assures success or protects against loss.