Since it’s inception in 1935, the Social Security Program has been a safety-net of sorts for millions of Americans. More than 70 million people, the vast majority of whom are retired, receive benefit payments from the program every month.
While the program is one of the oldest social programs in the United States, it constantly changes. Every year, in October, the Social Security Administration announces changes for the upcoming year. Let’s look at the anticipated changes for 2022 and what they could mean to you.
Cost of Living Adjustment (COLA)
70 million Americans who receive Social Security benefits will see a raise next year. The increase to their benefits will equal about 5.9%. This increase also applies to those receiving SSI. All in all, the benefit increase will be about $92 per month on an average benefit payment of $1657.
COLA increases are based on the Federal Government’s calculation inflation in the Consumer Price Index or CPI. The CPI increases when things like fuel, housing, healthcare, insurance and food increase in price. The COLA adjustment is to help cover these increased costs. Over the past few decades, most COLA increases have been 1 – 2%. 5.9% represents the largest increase in COLA since 1982.
The Full Retirement Age is Going Up
In 1983, a major adjustment to Social Security law took place. One of its features was the increase of the Full Retirement Age, or FRA is the age at which one can receive their full monthly Social Security retirement benefits. The FRA has gone up gradually since that time. In 2022, anyone born in 1960 or later will have an FRA of 67 years old. This means that applying for benefits prior to that age will entitle you to less than the amount you could receive on a monthly basis. The good news is that if you delay receiving SSA retirement benefits until you are 70 years old, you could receive 124% of your full benefit!
Maximum Taxable Earnings are Increasing.
Social Security benefits are funded by with holdings from workers paychecks. There is a maximum amount of your earnings that are taxed. The amount changes from year to year, usually going up. In 2015, the maximum amount of earnings that were taxed was $118,500. The amount of maximum earnings has increased by $5,100 this year going from $137,700 to $142,800. For those who make more, only the first $142,800 you earn will have Social Security with holdings. Congress is debating additional changes to the amount of maximum earnings that should be taxed.
Maximum Benefit Payment is Going Up
In 2021 the Maximum Retirement Benefit, or the max payment that one could receive from Social Security, if you are Full Retirment Age (FRA), was $3113. In 2022, that amount has been bumped up to $3568. Part of this increase has to do with the fact that the FRA will be increasing this coming year from $66 and 10 months to 67 years old. If you wait to receive benefits until you are 70, your maximum retirement benefits could be as high as $4194 per month.
This amount is not as easy to achieve as it might seem. The SSA uses the highest 35 years of earnings to calculate your benefit. So, you have to have at least 35 years of work and SSA contributions not to have some of those years where you did not work be counted as 0 income. Of course, these high benefit amounts assume that you have been earning the max taxable amount for those 35 years.
Additionally, a related change has to do with the minimum number of work credits that you must earn in order to qualify for any benefits at all. In 2022, one must have accumulated at least 40 work credits to receive Social Security benefits. One credit is given for each quarter of the year that you earn at least $1510 compared to $1470 per quarter last year. So, you must worked for at least 40 quarters or 10 years to qualify for SSA benefits. This is another change that is made regularly to the program.
Withholding Thresholds for Early Recipients are Increasing
Filing for Social Security benefits does not mean that you can no longer earn income elsewhere. You can continue to earn, even if you are receiving SSA benefits, but there are limits. If you file for Social Security benefitss early, that is, prior to reaching you FRA, you may become subject to withholding thresholds. For instance, if you are not at Full Retirement Age, you can have $1 for every $2 of earnings over $1630 per month or $19,560 per year withheld from your benefits. These benefits are not lost, they are just delayed. You can receive these once you hit FRA. During the year that you hit FRA, Social Security may deduct $1 from your benefits from every $3 you earn over $51,960.
Once you hit your Full Retirement Age, you are no longer subject to the annual earnings limit. this means that you can earn as much as you want without your benefits being reduced. Be aware, however, that you can still be taxed.