Social Security has been around for decades, but the program is still going through its share of changes from year to year. Here are a few changes that could affect your finances in 2022.
1. A generous adjustment to the cost of living
In recent years, Social Security’s annual cost of living adjustments (COLAs) have been pretty stingy. That’s because they are directly related to inflation data and before 2021 the inflation rate remained fairly stable.
This year, however, inflation was rampant, which is why benefits are getting a big boost. In 2022, Social Security recipients can expect their benefits to increase by 5.9%. That costs the average monthly benefit of $1,565 to $1,657.
That said, the cost of Medicare Part B is also rising a lot, and so seniors on Social Security won’t be able to fully enjoy that increase. The standard monthly Part B premium will cost $29.60 more in 2022 compared to 2021, which will eat up about a third of the typical beneficiary’s COLA.
2. A higher wage cap for social security taxes
Employees do not pay Social Security taxes on all of their earnings. Every year, a wage cap is introduced that determines how much income is taxed.
In 2021, income up to $142,800 will be subject to Social Security taxes. Next year, that pay cap will rise to $147,000. Lower earners will not be affected by this change, but higher earners could lose a larger portion of their income to Social Security.
3. A Higher Income Test Limit
It is possible to collect Social Security and keep a job at the same time. If you do this before you reach full retirement age (FRA), you’ll need to adhere to the income test limit if you want to avoid having some of your benefits withheld.
That limit changes every year. In 2021, you can earn up to $18,960 without impacting your benefits. From there, you get $1 in Social Security withheld for every $2 you earn above that limit. In 2022, that limit will increase to $19,560, so you can earn a little more without withholding any benefits.
The income test limit is also different for those who reach FRA. If you reach FRA in 2021, you can earn up to $50,520 with no impact on your benefits. From there, you get $1 in Social Security withheld for every $3 you earn above that threshold. In 2022, that limit will increase to $51,960.
4. A higher income threshold to score work credits
To qualify for Social Security benefits, you must accumulate 40 work credits during your lifetime, with a maximum of four credits per year. The value of a work loan can change from year to year. Right now, a work loan is worth $1,470 in income. In 2022, you must earn $1,510 to get a work credit.
If you work full time, this change shouldn’t bother you at all. Even those who earn the federal minimum wage can easily earn the maximum four work credits per year if they are on a 40-hour-a-week schedule. But if you work part-time, you may need to adjust your hours to make sure you can earn the work points you want.
Social security can evolve significantly from year to year. Keep these changes in mind so you know what to expect once 2022 arrives.