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A new year and a new decade begin next week. Whether you’re retired or still working, many changes are coming that could affect you—for better and/or worse. Here’s our breakdown of what you need to know in 2020:
Retirement plans
You’ll be able to stash $19,500 in your 401(k) plan, 403 (b), Thrift Savings Plan and most 457 plans. That’s up $500 from this year.
If you’re age 50 or older, so-called “catch-up” contributions allow you to save an additional $6,500 in each of these accounts—also up $500 from this year.
If you have a SIMPLE retirement account (typically offered by small businesses with 100 or fewer employees), you can save $13,500, which is also up $500 from 2019.
If you have an individual retirement account (IRA), you can save $6,000 in 2020, with a catch-up contribution of an additional $1,000. These levels are unchanged from 2019.
Social Security
According to the Social Security Administration, the average Social Security benefit in 2019 was $1,356.05 per month. This will rise an extra 1.6% in 2020. The increase, tied to inflation, works out to an extra $21.69 a month. In 2019, some 63.8 million Americans drew Social Security—the first time since the program began in 1935 that spending topped the $1 trillion mark.
There’s another important Social Security threshold to mention. The program’s full retirement age (also known as the “normal retirement age”) will increase by two months to 66 years and eight months for persons born in 1958. This means if you were born that year, you’ll have to be that age in order to collect your full 100% benefit. In both 2021 and 2022, the full retirement age will increase another two months a year—bringing the full retirement age to 67 for anyone born in 1960 or later.
Of course, you can still begin taking payments as early as age 62, but you’ll get less. How much less? The Social Security Administration says if you start receiving retirement benefits at age 62, you’ll get 75% of the monthly benefit because you’ll be getting benefits for an additional 48 months; age 65, you’ll get 93.3% of the monthly benefit because you’ll be getting benefits for an additional 12 months
If you start receiving benefits as a spouse, there’s an additional set of numbers to be aware of.
When should you and/or your spouse begin taking payments? There’s no one-size-fits-all answer here. It also depends on other factors, such as your pension, your level of personal savings and so forth. As always, you should discuss your own situation over with a trusted financial adviser.
Medicare
It’s worth noting that while you’ll get 1.6% more from Social Security, you’ll pay 6.7% more for Medicare—or at least the standard monthly Part B premiums. They’ll increase to $144.60, up from $135.50 in 2019 (funny how politicians mention the good news but not the bad, isn’t it?).
That’s the minimum premium. The Centers for Medicare and Medicaid Services, says that depending on your income, premiums could be as much as $491.60 per month. Part B premiums cover doctor visits and outpatient care. Why the increase in premiums? Medicare officials blame higher drug prices.
Health care tsunami
It’s important to remember that these rising medical costs are part of a far bigger problem that retirees are likely to face. Each year, Fidelity Investments, the Boston-based asset management firm, estimates out-of-pocket medical expenses for the average couple retiring at age 65.
The figure for 2019? Hold on to your hat: $285,000. For single retirees, the health care cost estimate is $150,000 for women and $135,000 for men. You can be sure these figures will rise another few percentage points in 2020.
This is a sobering figure, particularly when you consider how little millions of Americans have saved up.
I’ve said it before and say it again now: for many, there won’t be any golden years. For younger Americans, it’s a reminder to save as much as you can—starting right now.
