As people approach their golden years and prepare to transition out from full-time work, personal and financial considerations begin to shift in a new direction. When retirees reach that milestone in their lives, the questions regarding Social Security payments, Medicare, and retirement funds are pushed to the forefront, but retirees are not the only ones affected by the changes. And it’s not always easy to sift through all the information.
So what should people know about changes to Social Security in 2022? Let’s look at some of the specifics.
Important Information About Retirement in 2022
According to data from Pew Research, the COVID-19 pandemic might have played a major role in accelerating the retirement of thousands of Baby Boomers. As the world shut down and uncertainty about illness, vaccines, and employment status grew, Baby Boomers decided this might be a good time to make the leap towards retirement.
And for those who did or are close to it, there are a few key changes to take note of.
#1) Increase to Social Security Benefits
Every year, the Social Security administration announces pertinent changes that will come into effect in the upcoming year. While your Social Security benefits are largely dependent on your lifetime earnings, they are also impacted by changes in wages, adjustments to inflation, and other external factors. One of the factors that play a role in changes to Social Security checks is the cost of living as determined by the Consumer Price Index.
In 2022, almost 70 million people receiving Social Security will see a cost-of-living adjustment (COLA) reflected in their checks. This year, the adjustment means a considerable increase in Social Security benefits. Such a significant increase has not been seen since the presidency of Ronald Reagan in 1982.
Social Security recipients will see a cost-of-living adjustment of 5.9%, up from the 1.3% increase in 2021. Based on the average 2022 retirement benefit of $1,657, this translates to $92 more per month. For many retirees depending on this as their sole income, the increase is significant, but experts explain that some of that extra change will go directly to buying goods that have increased in prices and/or rising Medicare costs.
#2) Retirement Age Increases
In 2022, the earliest a person can claim Social Security benefits is still the age of 62. However, that is not considered full retirement age. Social Security Administration calculates your full retirement age (FRA) based on your year of birth. For people born between 1943 and 1954, FRA is age 66. For those born in 1955, it inches up to 66 and 2 months and continues to inch up by a few months for people born between 1955 and 1960 until it settles at age 67 for those born in 1960 or later. When someone claims their benefits before their full retirement age, it results in a reduced payout.
#3) An Increase in the Taxable Wage Base
In order to fund Social Security, working employees are taxed, but there is a limit to how much of their wages can be taxed for Social Security purposes. This limit is called the taxable wage base. That number also increased from $142,800 in 2021 to $147,000 in 2022.
#4) Medicare Premiums Spike
The base premium increase of 14.5% forms another significant piece of the changes affecting Social Security recipients and retirees. Medicare Part B premiums were announced by the Centers for Medicare & Medicaid Services in late 2021 which will increase $170.10 in 2022, up from $148.50 in 2021. This increase in premiums will directly take a bite out of a Social Security recipient’s benefit.
#5) HSA Contribution Amounts Rise
Health Savings Accounts are a saving grace for many Americans. Individuals who have self-only coverage will be eligible to increase their HSA contribution to $3,650. Those with a family plan can contribute $7,300. These accounts only apply to folks enrolled in a high-deductible health plan.
The Bottom Line of Social Security & Other Changes in 2022
While Social Security recipients will receive higher payment in 2022, premiums and increasing inflation will also have considerable effects on how that dollar increase is spent. These adjustments are a direct reflection of the state of the economy, as inflation seems to be on the rise. Prices for goods have increased as inflation hit a 39-year high in November. With the cost of food, fuel, and vehicles rising, people’s pockets are directly affected.
Get Financial Advice That Fits Your Vision
Whether you are thinking about retirement or have just taken the big step, there’s a lot to consider, and the financial climate might make these decisions even more difficult. Factoring in these external variables and making wise decisions as the landscape changes are part of insightful financial advice.
Finances are complicated, but help is available. Contact your financial professional for guidance every step of the way.
This material prepared by TrinityPoint Wealth is for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Opinions expressed by TrinityPoint Wealth are based on economic or market conditions at the time this material was written. Economies and markets fluctuate. Actual economic or market events may turn out differently than anticipated. Facts presented have been obtained from sources believed to be reliable. TrinityPoint Wealth, however, cannot guarantee the accuracy or completeness of such information, and certain information may have been condensed or summarized from its original source. Materials herein were prepared by AGI Marketing. TrinityPoint Wealth and AGI Marketing are not affiliated.