Earlier this week, the Social Security Administration announced a 5.9% cost of living adjustment (COLA) for retirement benefits beginning January 2022. This increase will impact nearly 70 million Americans currently collecting retirement benefits. While earlier speculation suggested the increase could exceed 8%, it still represents one of the largest COLA adjustments since the early 1980’s.
Annual COLA adjustments are tied to the yearly changes in the Consumer Pricing Index (CPI). The large jump in CPI data is a direct result of the Covid-19 pandemic. CPI tracks price increases across a variety of sectors, and saw large jumps in costs related to energy, food, and vehicles/transportation. This does not come as a surprise as the country is still recovering from the economic impacts of Covid-19 and the significant strain it has put on supply chains across many industries.
While the increased COLA for next year is good news, it may not be time to pop the champagne just yet. Medicare Part B premiums for 2022 have not been announced, and it is expected that these premiums will likely increase.
For those enrolled in Medicare and currently receiving Social Security benefits, those monthly premiums are deducted directly from their Social Security checks. Nevertheless, this increase will be welcome by the millions of Americans who receive these important benefits each year.
Social Security also announced several other changes for 2022, including:
- The maximum taxable earnings for Social Security will increase to $147,000 from $142,800. Earned income above these limits is not subject to annual Social Security taxes, but all earned income is subject to Medicare taxes.
- The earnings test for early filers will increase to $19,560 for 2022. Individuals who file for benefits before reaching Full Retirement Age and continue to work may have benefits withheld until they reach their Full Retirement Age. Social Security withholds $1 for every $2 earned above the limit each year prior to reaching Full Retirement Age.
- The quarter of coverage income amount increases to $1,510 for 2022. Workers may earn up to four quarters of credit each year. To be eligible to receive Social Security benefits, workers must obtain a minimum of 40 quarters of credit over their career.
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