Changes to Social Security for 2022

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Changes to Social Security for 2022

The Social Security Administration recently announced several adjustments to the program for 2022 that will affect retirees and workers alike.  These revisions may not have an immediate impact on your situation. But it is always wise to understand how changes can affect your finances.

Cost of Living Adjustments (COLA) 

By 2022, benefits paid by Social Security will increase by 5.9%, the biggest annual increase since 1982 and a stark rise compared to those seen over the last decade. Over the 47 years since COLAs began in 1975, a 5.9% increase ranks as the eighth largest, with the most significant increases concentrated between 1975 and 1982.

Looking at the average of all retired workers, expected monthly benefits will increase by $92 from $1,565 to $1,657.  For an aged couple receiving benefits, the average monthly benefits will increase by $154 from $2,599 to $2,753.

Changing inflation metrics drive COLAs. Social Security uses a measure called CPI-W, the short version of a more academic title, the Consumer Price Index for Urban Wage Earners and Clerical Workers published by the Bureau of Labor Statistics. By comparison, the Federal Reserve measures its inflation-seeking success by another measure called PCE, or Personal Consumption Expenditure index, published by the Bureau of Economic Analysis. These are just two of the many inflation measurements assembled by various government agencies, few of which seem to reflect the changing prices so many of us read about and experience daily.

Maximum Taxable Earnings

The changes affect workers too.  The maximum taxable earnings upon which Social Security deductions arise will increase by $4,200 for 2022, or a 2.9% increase to $147,000. Any dollar earned beyond that point will forgo the 7.65% employee tax rate or the 15.3% self-employed tax rate. This announcement continues a stable pattern that started in 2019 of increases growing steadily around 3.0% per year, after an erratic pattern from 2016-18 of 0.0%, 7.3%, and 0.9%, respectively. We can expect to see these limits raised in coming years, increasing contributions to a dwindling Social Security Trust Fund.

Higher Full Retirement age

For beneficiaries who become newly eligible in 2022 or those born in 1960, the full retirement age will increase by two months to 67 years. 2022 is the final stage in a 22-year plan to raise the full retirement age by two years.  As we live longer than ever, it is increasingly likely there will be additional steps in the future to move the full retirement age higher still.

Earnings limits raised

Social Security beneficiaries younger than their full retirement age can continue to work while receiving benefits.  If they earn too much, however, a reduction of benefits will follow.  Beneficiaries who continue to work can earn $600 more, up to $19,560 in 2022.  For every $2 earned above that limit, they will withhold $1 of benefit.  Once you reach your full retirement age, there is no penalty for working and collecting Social Security benefits.

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2021-10-19T18:49:21-05:00 October 19th, 2021|Financial Planning, Social Security|0 Comments


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