7 Changes to Social Security in 2022


Ssince it was signed in 1935, Social Security was tasked with providing a financial base for retired workers in our country. Today, more than 65 million Americans receive a monthly payment, of which about 72% are retirees. In addition, nearly 22 million beneficiaries are lifted out of poverty each year thanks to the program.

But Social Security is also dynamic. Every year in October, the Social Security Administration (SSA) publishes a fact sheet detailing all the changes to be expected over the coming year. Last week that announcement unfolded.

Here’s a look at the seven biggest changes to Social Security in 2022.

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1. Recipients get their biggest ‘raise’ in almost four decades

The main change, and one that all 65 million and over beneficiaries are eager to hear, is that the cost of living adjustment (COLA) for 2022 is 5.9%. In English, this means that all beneficiaries will see their monthly payment increase by 5.9% in January. According to the SSA, this is estimated to represent a monthly increase of $ 92 for the average retired worker to $ 1,657.

In total, this “increase” of 5.9% is the bigger boost for Social Security recipients since 1983, and this reflects the high levels of inflation faced by all Americans. Rapidly rising fuel costs, along with steadily rising costs for food, accommodation and medical care, are primarily responsible for this historic increase in payments.

However, you will notice that I have intentionally put “increase” in quotes. This reflects that COLA is a measure designed to keep beneficiaries at the same level as inflation and not to help them “get ahead”. The reality is that the purchasing power of Social Security income has been plummeting since 2000, and even the sharp monthly increase next year is likely to be offset by higher prices for goods and services.

A person filling out an application form for social security benefits.

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2. The full retirement age rises one last time

In 1983, the last major overhaul of the social security program was enacted. The 1983 amendments introduced the taxation of benefits, gradually increased payroll taxes for all American workers, and provided for a very phased increase in the full retirement age (FRA) – i.e. the age at which a person becomes eligible to receive 100% of their monthly retirement benefit, as determined by their year of birth.

Since the inception of Social Security, there have only been 11 increases in the full retirement age of the program. In 2022, we will see the 12th and final two-month increase, which will raise the full retirement age from 66 years and 10 months for people born in 1959 to 67 for anyone born in 1960 or later. .

Think of the full retirement age as your personal line in the sand. If you start collecting your retirement pension any time before you reach your FRA, you will accept a permanent reduction in your monthly payment. Conversely, waiting until your FRA ends to start collecting your retirement pension can take your monthly payment above 100%.

A Social Security card stuck between IRS 1040 tax documents.

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3. High income earners will pay more taxes

Last year, the Social Security program raised just under $ 1.12 trillion in revenue. About $ 1,000 billion was the result of the 12.4% payroll tax on labor income (wages and salaries, but not investment income).

This year, the Social Security payroll tax applies to earned income ranging from $ 0.01 to $ 142,800. Any earned income over $ 142,800 is exempt from payroll tax. But in 2022, the maximum taxable earnings limit will increase from $ 4,200 to $ 147,000. While most Americans don’t earn $ 147,000 or more per year, this means that high incomes (about 6% of the workforce reach this taxable income cap) could be taxed up to 520.80 additional $ over the coming year.

For the curious, this taxable income limit is not an arbitrary figure drawn out of nowhere. Rather, it is based on the year-over-year increase in the National Average Wage Index (NAWI). The percentage increase in the maximum taxable earnings limit is proportional to the percentage increase in the NAWI from year to year.

An elderly couple enjoying the afternoon on a sailboat.

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4. The rich get richer: maximum monthly payments go up

While higher-income workers will pay more to Social Security next year, affluent retired workers also have the option of receiving a larger monthly payment. In 2021, maximum monthly benefits at full retirement age were capped at $ 3,148. But by 2022, the maximum monthly payment for the rich increases by $ 197 per month to $ 3,345.

Keep in mind that it is not easy to offset this maximum monthly Social Security payment. Three criteria must be met to receive this monster benefit. Retirees should:

  • Wait until full retirement age to apply for benefits.
  • Work at least 35 years, since each year less than 35 worked, an average of $ 0 is calculated in the calculation of their monthly payment.
  • Reach or perfectly exceed the taxable income limit for the 35 years that the ASS uses to calculate their monthly payment.

A senior working on his laptop sitting on a sofa.

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5. The withholding thresholds for early filers increase

American workers may not realize it, but seek retirement benefits before reaching full retirement age comes with some drawbacks. In addition to a permanently reduced monthly payment, it can also expose beneficiaries to the criterion of retirement income. The retirement income test allows the SSA to withhold part or all of a beneficiary’s payment if they earn more predetermined income thresholds.

For example, early filers who will not reach full retirement age in 2021 may be denied $ 1 in benefits for every $ 2 of earned income above $ 18,960 ( $ 1,580 / month). Meanwhile, the first filers who reach their FRA in 2021 are allowed to earn up to $ 50,520 ($ 4,210 / month) before $ 1 in benefits can be withheld for every $ 3 of income earned above. of this threshold.

In 2022, these two income thresholds increase. The first filers who do not reach their FRA will be allowed to earn $ 19,560 ($ 1,630 / month) before the start of the withholding of benefits. For retired workers who will reach their FRA next year, the income threshold drops to $ 51,960 ($ 4,330 / month).

Keep in mind that the retirement income test no longer applies once a person reaches full retirement age.

A woman in a wheelchair holding a cup of coffee and working on a laptop from her home.

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6. Disability income thresholds increase

Although more than three-quarters of all Social Security beneficiaries are retired workers or the immediate families of retired workers, the program has also distributes a monthly allowance to 8 million disabled workers. Next year, disabled workers will be able to earn a little more each month without their benefits being cut.

For example, disabled workers who are not blind have been allowed to earn up to $ 1,310 per month this year without their benefits being interrupted. In 2022, they will be allowed to earn up to $ 1,350 per month, or $ 480 in additional annual income, without interrupting their payment.

The year-over-year increase in the disability income threshold is even more nominally noticeable for people who qualify as blind. Next year, blind beneficiaries with disabilities will be allowed to earn $ 2,260 per month without their benefits being interrupted. That’s $ 70 a month more than in 2021.

A worker standing with his arms crossed in front of heavy industrial machinery.

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7. The bar to qualify for a retirement benefit has been raised

The seventh and final big social security change for 2022 is raising the bar for workers to qualify for a retirement benefit.

To receive a Social Security benefit, Americans must earn 40 lifetime work credits, of which a maximum of four credits can be earned each year. These credits are granted to workers based on their income in a given year.

This year, a lifetime work credit is given for every $ 1,470 of earned income. Since a maximum of four credits can be earned each year, $ 5,880 of qualifying income for 2021 will be net of the maximum (four) work credits. But in 2022, it will take $ 1,510 in earned income to earn a single work credit, or $ 6,040 in annual income to make up the maximum of four credits.

Although the bar remains low for claiming a Social Security retirement benefit, it has steadily increased over the years.

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