The Social Security Administration just announced benefit increases effective in 2021. Current retirees will receive a cost-of-living increase, beginning in January 2021, of 1.3%, reflecting the increase in CPI-W between the 3rd quarter of 2019 and the 3rd quarter of 2020.
In addition, the maximum amount of earnings subject to Social Security tax will increase in 2021 from $137,700 to $142,800, based on a 3.7% increase in the ‘national average wage’ during 2019.
These changes will affect benefits for currently retired individuals, as well as those contemplating retirement. Employers who sponsor retirement plans that are ‘coordinated’ with Social Security in some fashion will also see an impact on benefits earned and payable under such plans.
IRS will soon release limits applicable to retirement plans for various purposes in 2021, based on a 1.22% increase in CPI-U between the 3rd quarter of 2019 and the 3rd quarter of 2020. Based on this increase, we expect increases in most limits applicable to retirement plans in 2020. The table below summarizes our calculations for 2021, along with values for 2020 and 2019:
The increase in national average wages also drives some key amounts used in calculating PBGC premiums. Relevant amounts for 2021 (along with 2020 and 2019) are summarized below:
Elements of PBGC premium calculations are indexed to increases in the national average wage. 2021 amounts reflect a 3.7% increase in the national average wage during 2019.