Social Security is an ever-evolving program. While the broad strokes of Social Security remain the same — you pay taxes while you are working and then receive benefits after you retire — the details can change frequently, often from year to year. This is certainly true for 2022, where a number of important Social Security metrics changed in line with a rising inflation rate.
But how do these changes affect you if you are nearing retirement or have already started receiving benefits? Here’s a look at some of the most important facts about Social Security for 2022.
The Cost-of-Living Adjustment Rose 5.9% in January 2022
Every year, the Social Security Administration applies a cost-of-living adjustment to benefits based on the current rate of inflation. If the SSA didn’t update payments to keep up with inflation, benefits would essentially be worthless today. For retirees, the silver lining to the spike in inflation in 2021 was a quite large 5.9% increase in benefits beginning in January 2022. This was the largest cost-of-living adjustment in 40 years, since 1982’s 7.4% bump. If current inflationary trends remain, the COLA for January 2023 may be even higher.
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The Social Security Wage Base Rose to $147,000
Social Security is primarily funded through payroll taxes on current workers. On your paycheck, OASDI taxes take out 6.2% for Social Security and 1.45% for Medicare, for a total of 7.65%. Your employer pays an additional 7.65% on your behalf, or if you are self-employed, you are responsible for the full 15.3% yourself. But the 6.2% in Social Security taxes is limited by the so-called wage base, which rises every year in response to inflation. For 2022, only wages up to $147,000 are taxed for Social Security.
The Social Security Earnings Limit for 2022 Is $19,560
The Social Security Earnings Limit, not to be confused with the wage base, is the maximum amount you can earn before your benefits are subject to taxation. Since the Social Security Administration considers you retired if you are earning benefits, any excess wages you still draw may impact your benefits. However, this only applies if you are younger than full retirement age, which for most workers now is 67. If you’re younger than that, the SSA will deduct $1 from your benefit for every $2 that you earn above the earnings limit. For example, if you earn $29,560 and are under full retirement age, your benefits will be reduced by $5,000.
For the year you reach full retirement age only, the calculation changes. For 2022, the SSA will reduce your benefits by $1 for every $3 you earn above $51,960.
But don’t worry, those benefits are not lost, they are simply deferred. Once you reach full retirement age, the SSA will recalculate your benefit amount to give you credit for the months it reduced or withheld benefits due to your excess earnings.
The Maximum Social Security Payout for 2022 Is $4,194
Only earnings up to the Social Security wage base are considered for calculating benefits. In other words, whether you earn $147,000 in 2022 or $10 million, you’ll pay the same amount of Social Security taxes and earn the same amount of credit toward your benefits. This also means that there is a maximum allowable Social Security payout, which for 2022 is $4,194. But hardly any recipients actually qualify for the maximum benefit, as you’d have to earn the full wage base limit for 35 years and wait to claim your benefits until age 70. Most Social Security beneficiaries receive something closer to the average benefit, which was $1,657.
Survivors, Children and Spouses — Even Ex-Spouses — May Be Able To Claim Benefits
Social Security pays a wide range of benefits, not just to retirees. Children of disabled, retired or deceased workers, for example, may be eligible for benefits, as are widows or widowers of beneficiaries. Spouses can claim benefits worth up to 50% of the primary beneficiary’s payout, even if they never worked a day in their lives. Even ex-spouses may be entitled to this benefit, as long as they were originally married for at least 10 years and the person claiming spousal benefits isn’t remarried.
Waiting as Long as Age 70 To Claim Benefits Can Significantly Boost Your Monthly Check
One of the easiest ways to increase your Social Security check is to wait until age 70 to file for benefits. If your full retirement age is 67, which it is for all workers born after 1960, you’ll earn an additional 8% for each of those three years of waiting, up to a maximum of 24%. When compared with the benefits you would earn if you filed early, at age 62, you’ll see a significant bump of about 77%. You’ll want to discuss your filing strategy with a financial or tax advisor, as everyone has different needs and financial capabilities. However, if you can afford to wait to file, your monthly benefits will be permanently increased by a significant amount.
You Have To Earn 40 Quarters of Coverage To Be Eligible for Benefits
Social Security is not a birthright. To earn benefits, you’ll have to qualify based on your work record. The Social Security Administration requires 40 “quarters of coverage” in order to qualify for benefits. Each year, you can earn up to four quarters of coverage, so for most workers, 10 years of employment are required to qualify for Social Security. For 2022, $1,510 in earnings qualifies for one quarter of coverage. This amount is adjusted annually for inflation.
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