Social Security Benefits Getting a Big Boost in 2022

Americans receiving Social Security benefits in 2022 will see the biggest increase in four decades, according to the latest news from the Social Security Administration. The 5.9% cost-of-living adjustment (COLA) will impact approximately 70 million Americans receiving Social Security and Supplemental Security Income (SSI). This is the largest increase since 1982 and is expected to bring retirees’ average monthly benefit next year up to $1,657, which is an additional $92 per month compared 2021.

The increase in payments reflects near-term inflation during the pandemic. The purpose of COLA is to ensure the purchasing power of Social Security and SSI benefits is not eroded by inflation. It is based on the Labor Department’s measure of inflation in the Consumer Price Index, which rose 5.4% in September compared to a year earlier.

The Social Security Administration has also raised the maximum amount of earnings subject to the Social Security tax from $142,800 this year to $147,000 in 2022, a 2.9% increase. The increase is based on the agency’s calculation of the changes in annual wages.

The earnings limit for workers who are younger than “full” retirement age receiving benefits will increase to $19,560 along with an increase to the earnings limit for people reaching their “full” retirement age in 2022 to $51,960. Beginning the month an individual reaches “full” retirement age there is no longer an earnings limit on benefits. To learn more about your “full” retirement age and benefit calculation, visit www.ssa.gov.

How Does Inflation Factor In?

The overall financial impact to retirees and other recipients will remain to be seen and is largely dependent on whether inflation eases next year. Consumer prices have risen due to disruptions in supply chains and have had a large impact on those living on fixed incomes in retirement and otherwise. According to the DOL, prices have increased significantly from a year ago for consumer goods such as gas, used cars, furniture, appliances and meat, fish, poultry and eggs. As a result, unless inflation eases, much of the COLA increases will be absorbed by the rising cost of goods and the increase in Medicare Part B premiums, which rise from $148.50 in 2021 to $158.50 in 2022. Most retirees’ Medicare Part B premiums are automatically deducted from their monthly Social Security benefit payment.

DON’T PANIC

Federal Reserve Chairman Jerome Powell and other Fed officials have said they expect elevated inflation to be temporary and to ease as disruptions associated with the economy’s reopening fade. If higher prices turn out to be transitory and reflective of temporary supply shocks, then it would be quite positive for those that receive increased benefit payments. Additionally, proposed legislation from U.S. Representative John Larson (D-Conn.), dubbed the “Social Security 2100: A Sacred Trust,” calls for a benefit increase for current and new Social Security beneficiaries, protection against inflation for retirees, increased protections for low-income workers, improved benefits for widows and widowers in two income households, a repeal of the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) that currently penalizes many public servants, an end to the five-month waiting period to receive disability benefits, providing caregiver credits, extending benefits for students through age 22 and increasing access to benefits for children living with grandparents or other relatives. If enacted, the bill would also impose payroll tax on earnings above $400,000 to support the cost of the enhancements to Social Security.