The Social Security Administration (SSA) announced Wednesday that the nearly 70 million recipients will see a cost-of-living adjustment (COLA) of 5.9% in 2022, the largest increase since 1982. SSI recipients will start receiving their first increase on December 30, 2021. Regular Social Security beneficiaries will see their first check beginning in January 2022.
This year's bump is more than 4.5 times last year's 1.3% increase. The difference shows up in estimated increases in monthly benefits. The 1.3% increase in 2021 resulted in an average rise in monthly benefit checks of just $20. This year's 5.9% COLA will net the average recipient $92 per month or just over $1,100 in 2022. The last time beneficiaries saw a COLA this large was in 1982 when the increase amounted to 7.4%.
- The 2022 Social Security COLA will be 5.9%, the highest in nearly 40 years.
- The average recipient will see a $92 monthly increase over 2021.
- While the upcoming COLA helps mitigate 2021's 5.9% increase in the CPI-W, it is subject to further erosion by rising inflation in 2022.
- 2022 Medicare rates, expected to come out in November may further reduce the impact of this year's increase.
The Inflation Factor
Unfortunately, when the Social Security COLA sees a steep rise, that means inflation is also on the rise. After all, the Social Security COLA is tied to an increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) - specifically, from the third quarter of the last year a COLA was granted to the third quarter of the current year. In simple terms, if there is no inflation, there can be no COLA.
In fact, the CPI-W rose 5.9% over the past year, resulting in the 5.9% COLA for Social Security recipients. Although many people see the effect of the past year's inflation as eroding their "raise," the system does what it is designed to do - prevent inflation from draining value from Social Security benefits. Of course, if inflation continues to rise, that will reduce the buying power of the 5.9% increase. The Conference Board research group forecasts inflation of between 2.8% and 3.0% for 2022.
Medicare Rates Due in November
Although the cost of 2022 Medicare Part B premiums are not expected to be released until November, Medicare Trustees, in their August 2021 annual report, estimated next year's Part B premium would be $158.50, $10 higher than the 2021 monthly premium amount.
Since Medicare premiums are typically deducted from Social Security benefits, any increase in Part B premiums reduces the impact of any COLA. Most retirees do not pay a premium on Part A (hospitalization) premiums but for those who do any increase there would have the same effect. Other medicare costs including deductibles are also subject to increase on an annual basis.
Additional Social Security Changes for 2022
On top of the 5.9% benefit increase for 2022, Social Security recipients will see the following additional changes beginning in January 2022:
- Maximum earnings subject to the Social Security tax will increase to $147,000 from $142,800 in 2021.
- Maximum earnings working recipients under full retirement age can earn before a reduction in benefits will be $19,560 in 2022 vs. $18,960 in 2021.
- Maximum Social Security monthly benefit for a worker retiring at full retirement age in 2022 will increase from $3,148 to $3,345.
- The average Social Security benefit paid in 2022 increases to $1,657 from $1,565 last year.
- Disabled workers will also see a rise from $1,282 per month to $1,358.
- It now takes $1,510 to earn a single Social Security credit, up just $40 from 2021.
Things That Won't Change
- Social Security tax rates remain the same for 2022: 6.2% on employees and 12.4% on the self-employed.
- Individuals with earned income of more than $200,000 ($250,000 for married couples filing jointly) will continue to pay an additional 0.9% in Medicare taxes.
When will I get my first Social Security check with the new 5.9% increase?
SSI recipients will receive their first payment beginning Dec. 30, 2021. All others will receive theirs on their regular payment day in Jan. 2022.
How much will the 2022 Medicare Part B premium be?
Official notification is expected in early November 2021 but the CMS Trustees indicated in August that the new premium would likely be around $158.50, $10 higher than last year's premium.
How much will it cost to earn a quarter of coverage under Social Security in 2022?
The cost of a quarter of coverage will go up from $1,470 to $1,510 in 2022.