By now, you have probably heard that every day 10,000 or so baby boomers are turning 65. The Coronavirus may have pushed millions of Americans to retire earlier than expected. Some of you reading this have already entered retirement. I’ve been helping with people’s retirement planning long enough to know that many of you are likely counting the days until you reach financial freedom and can leave the full-time workforce. For many, Social Security benefits will be a significant part of their income in retirement. With that in mind, it is essential to know how Social Security will be changing for 2022.
Here are five ways that Social Security will be changing in 2022.
1) Continued Erosion of the Social Security Trust Fund
Without some significant adjustments to Social Security by Congress, the current excess Social Security trust fund revenue will be depleted by the year 2033. If this occurs, it is estimated that Social Security would only be able to pay less than 80% of the promised benefits from ongoing payroll taxes. To be clear, a 20% reduction in Social Security benefits would be disastrous and threaten to throw many American retirees into poverty.
2) Full Retirement Age for Social Security Has Increased
For Americans who are still a few years away from entering retirement, those born in 1960 or later, the full retirement age for Social Security has increased to 67. You will still be able to start taking your Social Security retirement benefits at age 62, but with reduced monthly payments.
3) Social Security Cost of Living Adjustment for 2022
High inflation seems like a good thing when it comes to your Social Security benefits. The Social Security cost-of-living adjustment (COLA) will be 5.9%. This is the largest Social Security COLA in nearly 40 years. On the flip side, this also means that things you are buying every day have cost you more over the past year. In case you didn’t know, your current and future Social Security benefits may be increased each year, partially depending on inflation numbers.
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4) Maximum Social Security Benefits Will Increase
For workers near the top of the Social Security income scale, $147,000 or more for 2022, your maximum Social Security payout will likely increase slightly in 2022. No individual at full retirement age can take home more than $3,345 per month, regardless of their pre-retirement income. This number can be increased by delaying Social Security until the age of 70. Elon Musk won’t get more than this at full retirement age, neither will you.
In case you were wondering, waiting until 70 could increase your Social Security benefits quite a bit. The maximum Social Security benefit at age 70 is $4,194 per month in 2022.
5) More of Your Social Security Will Be Taxed
Yes, your Social Security benefits are taxable. The amount that is hit with taxes will depend on household income levels. Just 50% of your benefits will be taxed if your income is between $25,000 and $34,000 as an individual. That goes up to $32,000 to $44,000 for a married couple, which is another example of the marriage penalty. As you get more Social Security income, more of your benefits will be taxed.
Hopefully, everyone reading this will have more income than that to live off in retirement. If so, 85% of your Social Security benefits will be taxable. That is assuming you have an income, in retirement, of $34,000 (individual) or $44,000 as a married couple.
Whatever your current age, take a moment and register for access to your Social Security benefit estimates. Visit ssa.gov, take a few minutes, and you will be able to find more information about Social Security, and more importantly, get an estimate of what your Social Security benefits will look like in retirement.