Each new year brings changes to Social Security. Even if you’re decades away from retirement, it’s important to keep tabs on what’s happening. After all, Social Security gets a chunk of each paycheck during your working years. And without Social Security, about 40% of Americans 65 and older would have incomes below the poverty level.
Read on to learn what’s in store for Social Security in 2022, whether you receive benefits or you’re still paying into the system.
5 Social Security Changes to Know About in 2022
What’s ahead for Social Security in 2022? Here are the five biggest changes you need to know about in the new year.
The 5.9% COLA is the biggest since 1982.
Probably the most talked-about change to Social Security benefits is the 5.9% cost of living adjustment (COLA). That’s the largest Social Security raise since 1982. Over the past decade, COLAs have averaged about 1.65%. The higher-than-usual adjustment is the result of soaring inflation, as measured by the U.S. Department of Labor’s Consumer Price Index (CPI-W).
Recipients will see that extra money in their checks beginning in January. Here’s how the COLA will break down for the average recipient:
- The average retired worker will get an extra $92 a month.
- The average disabled worker will get an extra $76 a month.
- The maximum Supplemental Security Income (SSI) benefit for individuals will increase by $47 a month.
Medicare premiums are also going up.
The 5.9% raise for Social Security recipients seems a little less generous when you consider that Medicare premiums are rising as well. Medicare Part B monthly premiums will spike by $21.60 in 2022, the largest increase in the program’s history. Because Part B premiums are automatically deducted from Social Security benefits, recipients who get Medicare won’t see their checks increase by the full 5.9%.
The higher premiums aren’t the only cost increase Medicare recipients will face. Both Part A and Part B premiums are also going up.
Full retirement age is now 67.
If you’re celebrating your 62nd birthday in 2022, your full retirement age is now 67. Full retirement age is when you’re eligible for your full Social Security benefit, which is known as your primary insurance amount. Though you can start benefits at age 62, your checks will be lower than if you waited.
Full retirement age started gradually increasing in two-month increments from 65 to 67 in 2000, based on your year of birth. For example, someone born in 1937 or earlier had a full retirement age of 65, while someone born in 1938 had a full retirement age of 65 and two months. Those born between 1943 and 1959 had a full retirement age between 66 and 66 and 10 months. But anyone born in 1960 or later has to wait until age 67 to receive their full benefit.
You’ll need to earn slightly more to get Social Security credits.
In 2022, you’ll need to earn $1,510 for each Social Security credit. That’s up slightly from 2021, when the minimum was $1,470.
To qualify for Social Security benefits, you need at least 40 work credits. You can only earn four credits within a year, so qualifying for benefits requires at least 10 years of work. As long as you earn $6,040 in 2022, you’ll receive the maximum of four credits for the year.
Social Security will tax up to $147K of wages.
If you’re a six-figure earner, Social Security taxes may eat up a slightly higher portion of your paycheck this year. The cap on taxable Social Security wages will increase to $147,000 in 2022, up from $142,800 in 2021. Essentially, the first $147,000 of your earnings are subject to the 6.2% Social Security tax. Anything you earn above $147,000 is exempt.
The increase in this cap isn’t something most people have to worry about, though. Only about 6% of workers earn more than the maximum taxable income in any given year.
Robin Hartill is a certified financial planner and a senior writer at Codetic. Send your tricky money questions to [email protected] or chat with her in Codetic Community.