Beck & Lenox Estate Planning & Elder Law, LLC, wants to share good news for Social Security recipients that will take effect in 2022. Our title is shown with a question mark because while we know there is a nice increase in planned Social Security payments, the net effect may be smaller than expected. These annual increases impact seniors who are already retired, as well as people who have yet to retire. Money Talks News’ recent article entitled “5 Ways the Social Security System Will Change in 2022” looks at what will increase for 2022.
- Benefits. Social Security recipients will have their monthly payments go up 5.9%. This cost-of-living adjustment (“COLA”) means an extra $92 a month, based on the average Social Security retirement payment. However, many retirees won’t see that much extra Social Security income in 2022. Instead, it will likely be offset in part by higher Medicare premiums and deductibles (although the federal government hasn’t announced exactly what those Medicare costs will be for 2022). In fact, the Medicare Part B premium is withheld from some retirees’ Social Security payments. And for some, the extra income may also be offset by higher taxes.
- The earnings limit for working retirees. If you claim Social Security retirement benefits before you hit full retirement age and also continue working, the SSA will withhold some of your benefits if your income exceeds what’s known as the earnings limit. However, there’s no penalty for earnings made while working after you reach full retirement age. This earnings limit goes up annually as the national average wage index increases. For 2022, it will rise from $18,960 to $19,560, if you will reach full retirement age after 2022, and from $50,520 to $51,960 ,if you will reach full retirement age in 2022.
You don’t lose any benefits that are withheld due to your income exceeding the applicable earnings limit. When you reach your full retirement age, your monthly benefit is increased permanently to account for months in which benefits were withheld.
- The tax cap on workers’ income. The maximum amount of a worker’s income that’s subject to Social Security payroll taxes will increase from $142,800 in 2021 to $147,000 in 2022. As a result, if you’re lucky enough to earn more than $147,000 in 2022, you won’t owe Social Security payroll taxes on every dollar you earn. The Social Security payroll tax rate itself will remain the same in 2022: 6.2% for employees (employers pay another 6.2% on their employees’ behalf), and 12.4% for the self-employed.
- The earnings required for one credit. Not everyone is eligible for retirement benefits, and to get Social Security retirement benefits, most people must accumulate at least 40 ‘credits’ during their working lifetime. Currently, you can earn up to four credits per year, if you work and pay Social Security taxes. The earnings required for you to receive one Social Security credit, also known as one-quarter of coverage, will go up from $1,470 in 2021 to $1,510 in 2022.
- The maximum benefit. There’s a limit on the amount a retiree can get in benefits—”the maximum Social Security benefit.” Your maximum Social Security benefit is based upon the age at which you retire. The maximum benefit for a person who retires at their full retirement age will increase from $3,148 per month in 2021 to $3,345 per month next year.
Whenever your money is mentioned, Beck & Lenox always wants to remind you of the need to plan carefully for the future and to make sure your estate planning is done.
Reference: Money Talks News (Oct. 19, 2021) “5 Ways the Social Security System Will Change in 2022”