6 Social Security Changes for 2022

2022's 5.9% COLA is the largest since 1982

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Every October, the Social Security Administration (SSA) announces its annual changes to the Social Security program for the coming year. Below is our summary of the Social Security changes that were announced in October 2021 and are set to take effect on Jan. 1, 2022.

Key Takeaways

  • Social Security recipients will get a 5.9% raise for 2022, compared with the 1.3% hike that beneficiaries received in 2021.
  • Maximum earnings subject to the Social Security tax also increased—from $142,800 a year to $147,000.
  • Other changes for 2022 include an increase in how much money working Social Security recipients can earn before their benefits are reduced and a slight rise in disability benefits.
  • Social Security tax rates remain the same for 2022: 6.2% on employees and 12.4% on the self-employed.
  • It now takes $1,510 to earn a single Social Security credit, up just $40 from 2021.

1. Beneficiaries to See a 5.9% Increase

The big news for 2022 is that nearly 70 million Social Security recipients will see reflected in their monthly benefits the largest cost-of-living adjustment (COLA) since Ronald Reagan's first term in office in 1982. The adjustment helped benefits keep pace with inflation and is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) as calculated by the U.S. Bureau of Labor Statistics (BLS). If the CPI-W increases more than 0.1% year over year between the third quarter of the previous year and the third quarter of the current year, then Social Security will raise benefits by the same amount.

As we've seen, 2022's 5.9% bump is much higher than most years; in 2021 the COLA increase was just 1.3%. The average monthly benefit for all retired workers will increase by $92 in 2022, from $1,565 to $1,657.

2. Maximum Taxable Earnings Rose to $147,000

In 2021, employees were required to pay a 6.2% Social Security tax (with their employer matching that payment) on income of up to $142,800. Any earnings above that amount were not subject to the tax. In 2022, the tax rate remained the same at 6.2% (12.4% for the self-employed), but the income cap increased to $147,000.

The flip side is that as the taxable maximum income increases, so does the maximum amount of earnings used by the SSA to calculate retirement benefits. In 2021, the maximum monthly Social Security benefit for a worker retiring at full retirement age was $3,148. In 2022, the maximum benefit increases by $197 per month to $3,345.

3. Full Retirement Age Continues to Rise

The absolute earliest that you can start claiming Social Security retirement benefits is age 62. However, claiming before your full (or normal) retirement age will result in a permanently reduced payout.

Under current law, the retirement age for Social Security purposes is set to increase by two months each year until it hits 67. If you turned 62 in 2021, then your full retirement age is 66 and 10 months. Unless the law changes, anyone born in 1960 or later will not reach full retirement age until they are 67.

If you delay collecting Social Security past your full retirement age, then you can collect more than your full, or normal, payout. In fact, if you put off claiming until age 70, then you will receive an annual payout up to 32% higher than if you started receiving benefits at full retirement.

After age 70, there is no further incentive for delaying: Your monthly benefit stops increasing, with or without put-offs.

4. Earnings Limits for Recipients Were Increased

If you work while collecting Social Security benefits, then all or part of your benefits may be temporarily withheld, depending on how much you earn. However, those income limits have increased slightly for 2022.

Prior to reaching full retirement age, you will be able to earn up to $19,560 in 2022. After that, $1 will be deducted from your payment for every $2 that exceeds the limit. The 2022 annual limit represents a $600 increase over the 2021 limit of $18,960.

If you reach full retirement age in 2022, then you will be able to earn $51,960, up $1,440 from the 2021 annual limit of $50,520. For every $3 you earn over the limit, your Social Security benefits will be reduced by $1, but that will only apply to money earned in the months prior to hitting full retirement age. Once you reach full retirement age, no benefits will be withheld if you continue working.

5. Social Security Disability Benefits Increased

Social Security Disability Insurance (SSDI) is an insurance program in which workers can earn coverage for benefits by paying Social Security taxes through their paycheck. The program provides income for those who can no longer work due to a disability, to help replace some of their lost income. Most years payments increase only increase slightly, however, the 9.6 million Americans who receive Social Security disability benefits will be pleased to learn 2022's 5.9% increase will result in a more noticeable boost in benefits.

Disabled workers will receive on average $1,358 per month in 2022, up from $1,282 in 2021. However, for a disabled worker, spouse, and one or more children, they’ll be paid on average $2,383 per month, an increase of $133 thanks to the 5.9% COLA.

6. Credit Earning Threshold Went Up

If you were born in 1929 or later, then you must earn at least 40 credits (maximum of four per year) over your working life to qualify for Social Security benefits. The amount it takes to earn a single credit goes up slightly each year. For 2022, it will take $1,510 in earnings per credit, up $40 from 2021. The number of credits needed for disability depends on your age when you become disabled.

Shortfalls Ahead?

According to the most recent (2021) Social Security and Medicare Boards of Trustees annual report, both trust funds face depletion in the decades ahead. If the predictions hold, it means that beginning in 2033, retirees who receive money from the Old-Age and Survivors Insurance (OASI) Trust Fund benefits, will receive about three-quarters (76%) of their scheduled benefit; those who receive payouts from the Disability Insurance (DI) Trust Fund will receive 91% of their benefit, starting in 2057. The report concludes by urging lawmakers to address these financial shortfalls, "taking action sooner rather than later.”

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