SS to You in 2022
If you’re currently receiving Social Security benefits, did you know your benefits will increase in 2022? The increase is due to a change in the cost of living adjustment (COLA) that’s built into your benefit. But don’t go spending the increase just yet. At the risk of raining on your parade…
Although we are not yet in 2022, the final announcement of what the COLA will be for next year will be in made this month. This gives those who choose what the adjustment will be less than a month to decide what the rate will be, but what I’m reading is telling me that the gains will likely be offset by the steep rise in inflation due to COVID-19 spending.
In 2021, the COLA rose by 1.3 percent; pretty standard for times of normality in the United States economy. For the average retirement benefit, that amounted to twenty dollars more per month for a total of $1,543 (average). However, for 2022 the increase is projected to be radically different. The COLA for 2022 is expected to be six percent. From January 2022 the new average payment would be $1,628.
This doesn’t mean that recipients will be seeing a sixpercent jump in money in real terms, however, as much of the gains will be offset by inflation. Everything is six percent more expensive these days, so six percent is only the minimum needed to maintain the purchasing power that you’ve had all along.
Two more reasons the COLA increase won’t go as far as it looks on paper, besides inflation, are Medicare Part B premiums and income taxes.
As anyone on Medicare knows, Medicare Part B premiums are deducted directly from Social Security beneficiaries’ monthly benefit checks. This is to pay for outpatient and physician services. Like with taxes, what an individual earns determines what needs to be paid.
The standard monthly premium for Medicare Part B enrollees is $148.50 for 2021, an increase of from $144.60 in 2020. From 2000 to 2020, Social Security benefits had an average annual increase of 2.2 percent, while Medicare Part B premiums went up by 5.9 percent. With such a hike in inflation, the average for premiums could rise as well and outpace the COLA. There goes part of your bump in benefits!
As well as Medicare, income from Social Security is subject to federal income taxes. Individuals with less than $25,000 in combined income do not have to pay taxes on their benefits. However, Social Security beneficiaries who are above the income threshold pay taxes on up to 85 percent of their benefits. Those tax thresholds are not adjusted for wage or price growth. Consequently, more beneficiaries are taxed on their benefits over time, notes the Center for Retirement Research. And… there goes the rest of your increase.
So retirees will get more money next year due to the COLA increase, but most gains are offset by inflation and price rises in tax and Medicare. Isn’t that always the way it is? The government giveth, and the government taketh away.