If you’re getting Social Security benefits, be aware of some major changes coming next year. There are three primary ways the rules will differ in ways that can affect your finances.
This is what they are.
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1. A major cost of living adjustment
The most noticeable change that any retiree will experience is that their monthly check will be for a larger amount. It may even be significantly larger.
That’s because the Social Security benefits program provides for periodic adjustments to the cost of living (COLAs) so that the benefits keep pace with inflation. Each year, the data for the Consumer Price Index for Urban Wages and Employees (CPI-W) is compared with the previous year. If the average CPI-W increases in the third quarter of the year, retirees are given a COLA to explain the increase.
Some estimates suggest that COLA could rise to 11.4% next year as a direct result of rising inflation. If this happens, the average retiree receiving an average benefit of $1,669 this year would see a $190 monthly increase in their Social Security checks by 2023.
2. An increase in the maximum benefit
The maximum monthly Social Security benefit is $4,194 in 2022. This is the greatest possible benefit a senior could receive. And it’s only available to those who applied for their first check at age 70 and who have also earned the maximum wage counted toward their Social Security benefits for a period of at least 35 years.
The maximum benefit is expected to be even higher next year. Both wage growth and the big COLA are going to drive up this maximum benefit. As a result, the small number of seniors who have made the most money in their careers will see even more money in their retirement checks next year.
However, it is important to realize that even with a higher maximum benefit, Social Security is not enough to live on. It is only intended to replace 40% of pre-retirement income (or less for the country’s highest earners as benefits are progressive). So make sure to save extra even if you’re on your way to getting the highest checks offered.
3. Higher threshold for work has consequences for benefits
Finally, there is good news for people who want to collect Social Security and who also want to work at least part-time. You may earn a little more money from your paycheck next year before your earnings affect your benefits.
This rule only affects people who have not yet reached full retirement age (FRA). Anyone who has already achieved FRA is allowed to work and earn an unlimited amount of money. But for those who have not yet reached that age, $1 will be withheld for every $2 earned over $19,560 in 2022 if they don’t reach an FRA at all during the year. Or if they will reach FRA but have not yet done so, $1 will be withheld for every $3 above $51,960.
The exact amount of the increase in these thresholds has not yet been disclosed. But they are rising due to wage growth in most years. For example, in 2021, you could make as little as $18,960 or $50,520 with no impact on benefits. The increase next year could be comparable or even greater than that between 2021 and 2022 due to the high current wage growth.
Understanding these changes can help you better prepare for the fact that you can get more money from Social Security next year and potentially increase your earnings a little too without risking losing your retirement checks.
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