Social Security Updates for 2022
It should be no surprise that with 10,000 Americans turning 65 every single day (until 2029), there is more demand than ever among consumers to understand their Social Security benefits. Social Security rules are anything but simple—ultimately requiring individual analysis based on a handful of factors and assumptions to truly identify the “best” way to collect benefits for your situation. Here are a few quick updates on Social Security for 2022 as we head toward the fall.
Cost of Living Increases
Social Security benefits increased by 5.9 percent in 2022 as part of the cost-of-living adjustment (COLA)feature—this is the largest COLA increase in almost 40 years. What this means in true dollar amounts is that the average individual payment for retired workers will increase by $92/month for a total of $1,657.Social Security payments adjust annually to account for increased costs due to inflation as part of the Consumer Price Index (CPI-W). Historical increases have ranged from 14.3 percent back in 1980 to 0 percent in both 2010 and 2011. The last time a 5-plus-percent increase was made was in 2009, when there was a 5.8percent COLA adjustment to benefits.
Other 2022 Changes to Social Security
Outside of the significant cost-of-living adjustment for 2022, there are a few additional changes for 2022 as well, including:
1. If you are turning age 62 this year (2022), your new full retirement age has been increased to 67.
Full retirement age, as a reminder, is the age in which you will receive your full primary insurance amount (PIA). Taking benefits before your full retirement age will result in a reduced benefit, while delaying benefits past your full retirement age will also result in an increased benefit (currently allowed to file as early as 62 and delay as late as age 70).
2. If you decide to collect your benefits prior to your full retirement age, the annual earnings limitation (before a benefit reduction occurs) is now $19,560 for 2022.
This means that prior to your full retirement age, if you are collecting social security benefits and receive income from work more than $19,560, your social security benefits will be reduced until you reach your full retirement age. As a quick note, the income threshold for the year in which you reach your full retirement age is increased to $51,960, and after your full retirement age, the income limitation goes away completely.
3. The future of Social Security also has been in the news recently.
If you take one item away from this article, it should be that Social Security will not go broke. While it is projected that the Social Security trust fund (the existing reserves built up over many years from more people paying in than collecting) is expected to be exhausted by 2033-34, there would still be FICA taxes coming in to cover approximately 75 percent of all current benefits. To say it in another way, if the trust fund is depleted, there would only be a 25 percent reduction in benefits—not a bankrupt system.
Furthermore, we envision reform to the system coming to help combat the increase in retirees filing for benefits as the baby boomers retire. These changes could come in many forms, including increasing full retirement ages, changing how COLA increases are provided, further decreasing benefits for those who file before their full retirement age, allowing retirees to delay benefits past 70 and much more. A few of these changes are currently being discussed by Congress today.
Considering Your Unique Social Security Strategy
Deciding when to file your own social security benefits is a complex process with many factors that should be considered before ultimately filing your papers. It’s important to understand that your benefit and strategy might look different than your neighbor, your brother or sister, or your best friend—and we strongly believe that you need to look at your entire financial picture to see how social security fits best from a timing perspective.
Savvy Social Security Educational Events at AAA
This fall, we will once again be hosting four “Savvy Social Security” educational events in partnership with AAA Minneapolis to help AAA members understand their options when it comes to different filing strategies, divorcee and spousal benefits, taxation and some unique “outside-the-box” financial planning techniques that you can act on today. Visit AAA.com/Events for specific dates and times. We look forward to seeing you this fall!
