Social Security has a number of complicated rules that determine the benefits seniors receive and the amount workers pay in taxes. The rules don't stay the same from year to year.
Current employees and retirees need to know about four big Social Security changes coming in 2022, which could affect the amount of money they end up bringing home. Here's what they are.
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1. The full retirement age is moving later.
The full retirement age is set by the Social Security formula. Seniors must claim their benefits in order to get their primary insurance amount. PIA is a standard benefit for retirees who have a good earnings record over the course of their career.
The full retirement age used to be 65. Social Security was amended in 1984 to move it later. FRA is at least 66 for anyone born in 1943 or after. FRA was set at 66 for those born between 1943 and 1954. The FRA was 66 and 2 months for anyone turning 66 in 2021. FRA is going to be 66 and four months for those who won't celebrate their 66th birthday until 2022.
Retirees should be prepared to wait a little longer to start receiving their benefits because the FRA is moving back two months for people who are 66 years old. Seniors who reach the FRA next year won't be able to earn as many delayed retirement credits as those who have already done so.
Retirees will see a big increase in their monthly checks next year. Social Security recipients are entitled to a 5.9% Cost of Living Adjustment in 2022.
Low inflation hasn't been very impressive recently, and that's because of the fact that COLAs happen in most years. A variety of factors, including rapidly rising demand, labor shortages, and supply chain issues, have resulted in inflation levels near record highs. The average senior will see an extra $92 per month in their checks because of the largest benefit boost in close to four decades.
Seniors should know that even the big COLA may not help them maintain buying power because prices may rise even more rapidly.
3. The wage base limit is increasing.
Current beneficiaries will not be unaffected by the changes to Social Security in 2022. New rules may affect future retirees who are still working. Some of the country's highest earning Americans will be subject to a larger Social Security tax bill.
That's not because Congress is taking action to raise Social Security taxes on the rich, but it's possible that legislation will make that happen. The wage base limit is increasing, which will cause taxes to go up for higher income people.
The maximum income subject to Social Security tax is the wage base limit. The average wage formula that determines how much money seniors receive is not used to calculate earnings above that limit. The wage base limit is going to rise to 147,000 in 2022. If you earn more than 142,800, you will pay Social Security taxes on up to $4,200 more income.
4. Seniors can make more money before giving up their benefits.
Retirees who are working while getting Social Security benefits may be able to earn more money. The loss of Social Security checks can be difficult for people who were counting on multiple income sources.
If you earn too much, you could lose some of your Social Security checks.
Seniors who won't hit FRA at any point during the year lose $1 for every $2 in earnings above $18,960 in 2021, but they won't lose their benefits until their earnings reach $19,560 in 2022. If you hit FRA at some point during the year, you will lose $1 for every $3 in benefits, but won't lose your benefits until you make $50,520 in 2021. It's good news for people who want to double dip and get both Social Security checks and a paycheck.
Changes to Social Security rules are important for everyone, so both retirees and people still in the workforce should be aware of them.
