One of the few positive by-products of spiking inflation is that the Social Security Administration (SSA) noticed and did something about it. As a result, a number of important changes are coming to a Social Security statement near you in 2022.
Here, we’ll look at five major changes to Social Security that you should have on your radar.
1. A 5.9% cost of living adjustment
As the headliner of major changes happening in 2022, the SSA announced that all beneficiaries will receive a 5.9% increase in their monthly benefit checks beginning next year. This increase is designed to help retirees maintain their purchasing power amid rising prices throughout the economy. Remember that even though you’ll receive more, your ability to purchase goods and services really hasn’t changed much from the year prior — but it’s still something to appreciate.
2. The Social Security wage base is increasing
The SSA collects its premiums for its Old Age, Survivor, and Disability Insurance (OASDI) program by taxing 6.2% of your wage base, up to a certain amount. In 2021, this amount was $142,800, and in 2022, it will rise to $147,000. In effect, all wages up to $147,000 will be taxed at a rate of 6.2%, while amounts earned above that threshold won’t be subject to Social Security tax. This is all to say that more of your income will be subject to taxation, and it’s important to know why.
3. Full retirement age (FRA) is increasing to 67 for those turning 62 in 2022
The age at which you can claim full retirement benefits is increasing to 67 in 2022; this applies to anyone born in 1960 or later. This means if you turn 62 in 2022, you’ll be facing a full retirement age of 67, which is only months higher than those born between 1955 and 1959. While it’s not a massive difference to the individual if we’re only talking about months of time, it does have a measurable financial impact when applied across the burgeoning retiree population.
4. You can earn more in retirement without losing early benefits
If you haven’t reached full retirement age and won’t until after 2022, you’ll be able to earn up to $19,560 ($1,630 per month) without receiving any reduction in Social Security benefits. This is up slightly from 2021, when you were able to earn up to $18,960 ($1,580 per month) without seeing any reduction.
If you will reach full retirement age during 2022, you can earn up to $51,960 during the period in 2022 before you reach full retirement age (up from $50,520 in 2021) without seeing your Social Security checks docked.
If you wait until full retirement age to claim benefits, the SSA will never take away benefits based on work. It’s another benefit of waiting to claim benefits if you’re in the fortunate position to do so.
5. Medicare Part B monthly premiums will rise 14.5%
While it’s a separate program entirely, the SSA’s Medicare program will also see cost increases in 2022. Medicare’s Part B monthly premiums — which pay for medical insurance — stand to increase 14.5% in 2022, going from $148.50 to $170.10.
This is mostly due to increased utilization across the healthcare universe, coupled with across-the-board cost increases. Critically, this increase is the largest in Medicare’s history and is certainly a reflection of the times in which we live.
You’ll pay more, but you’ll also get more
The wage base is increasing, along with the standardized FRA as well as Medicare Part B premiums. Taken together, this means you’ll pay more into the system than ever before. This is necessary for a number of reasons, but mainly to increase the amount available in reserve funds and account for our nationwide fight against inflation.
However, the SSA is increasing benefit payments and making it possible for early claimers to earn more money in retirement without it impacting monthly benefit checks. These changes should be gladly accepted and acknowledged as positive progress.
Be very clear on how these changes will affect you in 2022, and be sure to weave them into your budget.