Individuals will get greater Social Safety checks in 2022. Tips on how to put together
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People who collect Social Security will see bigger checks.
The cost of living adjustment in 2022 will be 5.9%, the Social Security Agency said on Wednesday. The surge, which will help beneficiaries keep pace with rising costs due to inflation, is the largest surge in about 40 years.
The adjustment will mean bigger checks for more than 70 million Americans. The approximately 8 million Americans with Additional Security Income (SSI) will see the change on December 30th, while about 64 million Americans on Social Security will see the increase in January.
The 2022 cost of living adjustment will add about $ 92 per month to an average retirement pension of $ 1,565 per month by some estimates.
“The cost of living adjustment is automatic every year and is one of the most valuable features of social security,” said Nancy Altman, president of Social Security Works, an advocacy group focused on expanding benefits.
Here’s what beneficiaries need to know about this year’s COLA.
What action do you need to take?
People already on Social Security do not need to do anything to receive the increase – checks are automatically adjusted.
Before that happens, however, the recipients may want to review their monthly budgets and see if they can use the extra money.
“You really need to look at the numbers and what that spike means for you and what it will mean for your monthly check-up,” said certified financial planner Diahann Lassus, executive director of Peapack Private Wealth Management based in New Providence, New Jersey. The extra money each month can help some people pay off their debts or put some of it in an emergency savings fund, she said.
“It’s like you’re going to work and getting a raise – are their other things you can do for yourself?” Said Lassus.
Inflation, Medicare will undermine the adjustment
Of course, people on Social Security should understand that COLA is not meant to make them necessarily spend more or have a bigger budget – they are supposed to keep their cost of living the same when prices rise due to inflation.
Right now, prices for things like rent, gas, utilities, and groceries have all risen due to inflation.
Additionally, those taking Medicare or Medicaid are unlikely to see a full 5.9% increase due to health care-related premiums. In November, for example, there will be premium increases for Medicare Part B. The latest Medicare trustee report estimates a $ 10 increase on Part B, raising the monthly rate from $ 148.50 to $ 158.50 for 2022.
These payments are generally deducted from social security and can affect the adjustment. However, a special rule called “Hold Harmless” protects people from receiving smaller social security checks as a result of Medicaid and Medicare.
“You might not get much more because of Medicare premiums,” Altman said. After the awards were announced, beneficiaries should receive a letter from the Social Security Administration in December describing their checks for 2022, she added.
Taxes can go up
If social security checks are your only income, taxes in general won’t change, according to Trenda Hackett, CPA and tax technical writer for tax and accounting at Thomson Reuters.
However, if you have other retirement benefits in addition to social security, or if you work and receive benefits, some of your checks may become taxable depending on your other income.
“Taxpayers who receive other sources of income above the thresholds in addition to social security benefits should expect their tax bills to increase if their income is likely to be above the base amount,” she said.
To avoid tax surprises, it may be a good idea to see a tax advisor now to make sure you know how the adjustment will affect your taxable income.
There may be no further major adjustment for some time
Just because there is a record adjustment this year doesn’t mean that social security agencies should expect similar increases in the future.
In fact, the big jump in 2022 could signal that there won’t be any big adjustments in the years to come. The last time there was a similar 5.8% increase in 2009, there were no adjustments for the next two years.
“People shouldn’t say, ‘Oh well, that’s going to happen every year,'” Altman said.
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