2020 and 2021 have been unusual years, and this is true for the markets and the economy as well. Following the initial downturn in the economy in 2020 with the arrival of the pandemic, the market recovered in the latter part of the year. While the markets have been growing in 2021, we’ve also seen an increase in inflation. Every year, the Social Security Administration and government take the economy into consideration for changes to the Social Security benefits people receive and the Social Security taxes we pay. Here are 3 changes coming to Social Security in 2022.
Catching Up With Inflation
Each year, the government adds a Cost-of-Living Adjustment (COLA) to Social Security benefits. This means that they increase the amount that people receive by a certain percentage. In 2021, that increase was 1.3%. In many prior years the increase has often been small. In 2022, because of inflation and other factors, the COLA will be 5.9%. The last time the COLA was this high was in 2008. According to USA Today, “That will take the average monthly benefit of $1,565 up to $1,657.”
Earnings While Receiving Social Security
The Social Security Administration is also changing the amount of money you can earn while receiving SS benefits. If you start taking your benefits prior to Full Retirement Age (FRA), in 2022 you can earn up to $19,560 without any impact on benefits. Beyond that limit, $1 in Social Security benefits will be withheld for every $2 you earn. Once you reach FRA, you do not have to worry about income from employment impacting your benefits. While you can begin taking benefits at 62, your FRA is between 66 and 67 years old, depending on when you were born. The SSA explains the ages and the reduction in money you receive if you start taking benefits early.
Increase in the Wage Cap for Taxes
Even for those who are not currently receiving Social Security benefits, there will be changes in 2022. This year, the wage cap for Social Security taxes will increase from $142,800 to $147,000. This means that if you earn up to $147,000, all of your income will be subject to Social Security taxes. However, if you earn more than the cap, you will pay taxes on the first $147,000 of your income. The tax rate remains the same for 2022.
These changes can have an impact on your overall financial planning, income make up, and tax liability. Please don’t hesitate to contact our office if you have any questions about your financial planning and portfolio.
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