Who is ready for 5 big changes in social security in 2022?


In 13 days, the curtain will close on 2021 and the world will hopefully have gone one step further to put the coronavirus pandemic in the rearview mirror. The New Year will be a time of hope, and for many, a time of change.

For the more than 65 million Americans who currently receive a Social security benefit each month, as well as those who contribute to the program with each paycheck, this will certainly be the time for a change. Below are five of the biggest changes Social Security recipients, and even some workers, can expect in 2022.

Image source: Getty Images.

1. Biggest increase in payments in almost four decades

Without a doubt, the most changes in front and center beneficiaries can expect a larger monthly payment in 2022.

The Social Security Cost of Living Adjustment (COLA) is the program’s inflationary linkage which is tied to the Consumer Price Index for Urban and Office Workers (CPI-W). The percentage change in the average reading of the CPI-W from the third quarter (July to September) from the previous year to the third quarter of the current year represents how much beneficiaries can expect to increase in earnings. payments. Please note, the other nine months of the year are not used in the calculation of the social security COLA.

With rapidly rising costs for fuel, food, shelter and medical care, the program’s COLA for 2022 stood at 5.9%. This is the largest year-over-year increase since 1983. In terms of face amount, the average retired worker is expected to see their payout. increase by $ 92 per month at $ 1,657.

However, before you whip out the celebratory champagne, understand that higher inflation will likely absorb most, if not all, of that increase in benefits. The Bureau of Labor Statistics November inflation reading stood at 6.8%. Meanwhile, the Senior Citizens League, a non-partisan seniors advocacy group, estimates the purchasing power of Social Security dollars has declined 32% since 2000 for retired workers.

Two social security cards placed on a W-2 tax form.

Image source: Getty Images.

2. High incomes will open their wallets a little more

Although Social Security generates income in three ways, the vast majority of income generated by the program comes from payroll tax. This is a 12.4% tax on earned income (wages and salaries) imposed on employers and employees. Workers share the 12.4% tax with their employer (6.2% each), or cover all 12.4% if they are self-employed.

In 2021, all income earned between $ 0.01 and $ 142,800 was subject to payroll tax. In 2022, the taxable earnings limit will drop from $ 4,200 to $ 147,000. Salary and salary earned above this limit are not subject to payroll tax.

For the over 90% of working Americans who earn less than $ 147,000 a year, nothing changes. This means that they will pay Social Security for every dollar earned, as they did in 2021. But the 6% of working Americans who will earn more than $ 142,800 in 2022 will have to open their wallets a bit more to cover more. payroll tax. This increase in the cap of $ 4,200 could result in up to $ 520.80 in additional taxes next year.

An hourglass next to stacks of coins.

Image source: Getty Images.

3. New eligible beneficiaries will have to wait a little longer to receive a full payment.

Almost four decades ago, Congress passed the last major overhaul of the Social Security program. The bipartisan Social Security changes of 1983 gradually increased the payroll tax over time, introduced the taxation of social security benefits, and provided a timetable for gradually increasing the payroll tax. full retirement age – ie the age at which a beneficiary becomes eligible to receive 100% of his monthly payment.

In 2022, newly eligible retired beneficiaries will have to wait even longer than their retired predecessors to receive a full payment. This is because 2022 marks the final increase in the full retirement age to 67, as set out in the 1983 amendments. Anyone born in 1960 or later will have to wait five full years after being initially eligible. to start collecting their payment before they can receive 100% of what is owed to them, depending on their work and income.

Want to claim early? Understand that early declaration at age 62 could reduce your monthly benefit by up to 30% compared to what you would have received if you had waited until age 67.

An elderly person counting a stack of money in his hands.

Image source: Getty Images.

4. The better-off can perceive a greater gain

On the one hand, high-income workers will need a little more over the next year. But for the well-to-do workers who have already retired and are on a monthly Social Security benefit check, their payoff is about to get even sweeter.

This year, the maximum monthly benefit payable by the Social Security Administration at full retirement age is $ 3,148. But in 2022, this maximum payment at full retirement age is increasing from almost $ 200 per month to $ 3,345. That’s over $ 40,100 a year.

Earning this maximum payout is not easy. Only a small single digit percentage of retirees actually collect the monthly maximum. But that maximum monthly payment may be on your radar during retirement if you meet all three of the following criteria:

  • Wait until full retirement age to apply for benefits.
  • Work at least 35 years to prevent a $ 0 from being averaged in your monthly payment calculation for each year less than 35 years worked.
  • Generate earned income equal to or greater than the taxable income limit for 35 years.

Two elderly people reading and pointing to the contents of an open laptop.

Image source: Getty Images.

5. Withholding thresholds increase for early filers

Last but not least, early filers – retired workers who have not yet reached full retirement age – can expect changes deduction thresholds for the retirement income test. The retirement income test allows the Social Security administration to withhold some or all of a beneficiary’s payment, depending on what they earn.

For example, early filers who did not reach full retirement age in 2021 were only allowed to earn $ 18,960 ($ 1,580 / month) before $ 1 in benefits was withheld for. every $ 2 of income earned above this threshold. In 2022, this threshold increases from $ 600 to $ 19,560 ($ 1,630 / month). In other words, the first declarers may earn a little more before the holdback applies.

The same goes for retired workers who will reach full retirement age in the current year, but have not yet done so. This year, retirees who met this definition were allowed to earn up to $ 50,520 ($ 4,210 / month) before $ 1 in benefits was withheld for every $ 3 of income earned above the threshold. The threshold will drop from $ 1,440 to $ 51,960 ($ 4,330 / month) for retirees who reach full retirement age in 2022.

Please note that once you reach full retirement age, the retirement income criterion no longer applies. In short, the Social Security Administration cannot withhold benefits no matter how much you earn.

The $ 16,728 Social Security bonus that most retirees completely ignore
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “social security secrets” could help boost your retirement income. For example: One simple tip could net you up to $ 16,728 more … every year! Once you’ve learned how to maximize your Social Security benefits, we believe you can confidently retire with the peace of mind we all seek. Just click here to find out how to learn more about these strategies..

The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


About Daisy Rawson

Check Also

Biden’s student debt relief plan blocked by judge: What to know in New Jersey

NEW JERSEY – A Texas federal judge has overturned President Joe Biden’s ruling student loan …