With the arrival of a new year, American retirees can be certain that there will be an array of new changes to their all-important Social Security benefits.
Without a doubt, the biggest one is due to the Social Security Administration’s announcement last fall of a 5.9 percent cost of living adjustment (COLA) for this year. This sizeable increase—the biggest bump seen in four decades—will lift the average Social Security monthly payments by about $90 to an estimated average of $1,657, and a typical couple’s benefits will climb by roughly $150 to $2,754 per month.
But do keep in mind that higher Medicare Part B premiums will increase 14.5 percent this year and the U.S. Bureau of Labor Statistics report released earlier this week revealed that the consumer price index (CPI) continued to trend higher to a tune of 7 percent—the fastest increase seen since 1982.
Unfortunately, retirees can be sure that these price increases will further eat away at their monthly Social Security checks.
Moreover, according to personal finance expert Maurie Backman at The Motley Fool, there are two other changes that could play a significant role in dictating how much Social Security one will receive.
Higher Social Security Tax Wage Cap
“Social Security is primarily funded with payroll taxes. But workers don’t automatically pay taxes on all of their income. Rather, there’s a wage cap that’s put into place every year that dictates how much income gets taxed,” she writes.
In 2021, the wage cap sat at $142,800, but this year, it will rise to $147,000.
“That means higher earners will pay taxes on an additional $4,200 of income,” Backman says.
“Now it’s easy to argue that higher earners shouldn’t be bothered by this change. … But let’s remember that in some parts of the country, a salary of $147,000 won’t go very far, especially in areas where a starter home can cost almost $1 million. And so a rising wage cap may hurt those people who aren’t close to being millionaires, but who earn more than the typical American,” she continues.
According to the Social Security Administration, an individual “must earn at least forty Social Security credits to qualify for Social Security benefits. You earn credits when you work and pay Social Security taxes.”
It goes on to warn that “we cannot pay benefits to you if you don’t have enough credits.”
Do take note that last year, it took $1,470 of earnings to land a single work credit, but in 2022, that has been bumped up to $1,510.
“None of this is a big deal for those who work full-time,” Backman says. “But part-time workers who are just on the cusp of qualifying for Social Security may get hurt by this change—especially if they’re unable to increase their hours and income.”
Ethen Kim Lieser is a Washington state-based Science and Tech Editor who has held posts at Google, The Korea Herald, Lincoln Journal Star, AsianWeek, and Arirang TV. Follow or contact him on LinkedIn.