5 Changes to Social Security in 2020

The massive baby boomer generation is reaching retirement age at a rate of about 10,000 people per day, and this retirement boom is pushing the Social Security program to its limits.

By 2035, Social Security estimates the number of Americans ages 65 and older will increase from about 52 million today to more than 79 million.

In order to increase the longevity of Social Security, the U.S. government continues to seek and implement policy changes that affect all Americans – from workers who are decades away from retirement, to current retirees.

Let’s take a look at five key ways Social Security is set to change in 2020.

1. Drawing down trust fund reserves to help pay for benefits

Beginning in 2020, for the first time since Social Security trust funds were established in 1983, Social Security will begin paying out more in benefits than it receives in revenue, according to the latest Social Security and Medicare Trustees report released in April.

In order to pay current retirees all of the benefits they have been promised, the program will have to start dipping into trust funds and drawing down its assets next year.

According to that same April 2019 report, the current $2.8 trillion in excess trust fund revenue accumulated over the last 35 years is expected to be depleted by 2035, unless Congress and the White House are able to reach a political solution to Social Security’s basic math problem. 

2. Full retirement age increases

For those born in 1960 or later, the full retirement age increases to 67. People who turn 62 in 2020 will still be eligible to claim reduced Social Security benefits, but they won’t be able to claim their full retirement age benefit amount until they’re 66 and 8 months.

This retirement age increase is a result of the 1983 legislation that instituted a gradual increase in full retirement age from 65 to 67.

3. Cost of Living Adjustment

In the second week of October, the Social Security Administration (SSA) announces changes to the program for the upcoming year that could directly impact what beneficiaries are paid on a monthly basis.

The most important figure in the SSA’s October 10th announcement is the cost-of-living adjustment (COLA), which is the SSA’s quantified attempt to account for the impact that inflation has on pricing power for those receiving benefits.

While the increase in benefits for 2020 is presently undetermined, under the intermediate assumptions of the 2019 Trustees Report,  the Social Security cost-of-living adjustment payable in January 2020 is expected to be around 1.8% – a full percentage point below the 2.8% COLA that took effect at the beginning of 2019.

The Senior Citizens League (TSCL), a nonpartisan advocacy group representing more than 1 million retirees, issued an ever lower Social Security COLA 2020 projection at 1.6% in its preliminary estimates.

4. End of file-and-suspend bonus

In 2015, Congress implemented some major changes to how people can claim Social Security benefits. One such change was the elimination of the “file-and-suspend” bonus.

People who reached full retirement age after April 29, 2016 were no longer allowed to “file-and-suspend” their benefits, a social security maximization strategy that triggered payments for eligible family members while their own benefits continued to annually grow 8% up to age 70.

In 2020, that last group of baby boomers who were grandfathered into eligibility will turn 70, the age at which their Social Security benefits automatically begin, and the file-and-suspend strategy becomes a thing of the past for everyone.

5. Spousal benefit strategy disappears 

Also part of that 2015 Social Security policy shift from Congress was the prevention of people who reach full retirement age in 2020 or later from filing a restricted claim for spousal benefits.

Like “file-and-suspend,” this spousal benefit strategy was a way for couples to maximize their Social Security benefits. A spouse would file for a restricted application for only spousal benefits, allowing their own individual benefits to grow 8% per year until age 70.

With the rule change, though, when a spouse files for benefits, they are now deemed to file for spousal and individual benefits. By receiving individual benefits, they now miss out on that 8% per-year growth.

These are just a few of the many changes that the Social Security program is poised to endure as government officials try to find a solution for the country’s biggest math problem. With an aging population, increased life expectancy, and fewer young Americans entering the workforce to contribute to Social Security revenue, this equation is not going to solve itself. 

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