Benefits are going up, but so are the Medicare premiums deducted from monthly checks
Social Security beneficiaries will have a lot to cheer about in 2022 — but they may have a few things to grouse about as well. Here’s a rundown of what will change for Social Security beneficiaries in the new year.
The biggest change beneficiaries will see in Social Security in 2022 is a 5.9 percent cost-of-living adjustment (COLA) to monthly retirement checks and Supplemental Security Income (SSI) checks. The increase is the largest COLA since 1982.
The COLA will boost the average retirement check by $92, to $1,657 a month. The maximum monthly benefit for a worker who retired at full retirement age will jump by $197, to $3,345. SSI checks, for those with limited incomes and few financial resources, will get a lift, too. The maximum monthly SSI payment in 2022 will be $841 for an individual, up $47 from 2021, and $1,261 for a couple, up $70.
|Estimated Average Monthly Social Security Benefits Payable in January 2022|
|All Retired Workers||$1,565||$1,657|
|Aged Couple, Both Receiving Benefits||$2,599||$2,753|
|Widowed Mother and Two Children||$3,009||$3,187|
|Aged Widow(er) Alone||$1,467||$1,553|
|Disabled Worker, Spouse and One or More Children||$2,250||$2,383|
|All Disabled Workers||$1,282||$1,358|
The annual Social Security COLA is based on the change in prices of a market basket of goods. To measure these changes, the Social Security Administration (SSA) uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). For the 2022 COLA, the SSA measured the change in the average CPI-W index from July, August and September of 2021 to the average CPI-W index for the same three-month span in 2020. The percentage change between the two quarterly averages, 5.9 percent, is the COLA starting in January 2022.
The 2022 COLA was so large because prices of goods and services measured in the CPI-W have significantly increased in the past year, due in part to a rebounding economy and COVID-19 outbreaks, which have both driven up energy prices and strained the world’s supply chains.
Because the COLA calculation is backward-looking and fixed in time based on the change from the third quarter of 2020 to the third quarter of 2021, it does not always capture the full increase in goods and services if inflation persists beyond September, which it has. In the 12 months that ended in November, the CPI-W jumped 7.6 percent, and the Consumer Price Index for All Urban Consumers (CPI-U), the most common gauge of inflation, gained 6.8 percent. If inflation continues at this pace, it will erode the future buying power of Social Security payments.
Big hike in Medicare Part B premiums
Although the 2022 increase is substantial, most beneficiaries won’t see the full amount in their checks because Medicare Part B premiums are deducted directly from most Social Security retirement payments. Due to inflation (and because the 2021 Part B increase was limited by Congress), Medicare Part B premiums jumped to $170.10 for 2022, an increase of $21.60, from $148.50 in 2021.
Consider the person who has a $1,657.30 monthly benefit in 2022, up from $1,565 in 2021. They would have a net benefit (after the $170.10 2022 Part B deduction) of $1,487.20.
Those with the smallest Social Security benefit get hit the hardest by the Medicare increase, says Mary Johnson, Social Security and Medicare policy analyst for the Senior Citizens League, a nonpartisan advocacy group. “The folks with the lowest benefits see the smallest increase, yet they may be the same people who depend on Social Security for most, or even all of their income,” Johnson says.
For example, a person with a $1,000 Social Security benefit in 2021 would have gotten $851.50 a month after the 2021 Part B premium of $148.50 a month was deducted. In 2022, the person’s Social Security payment would rise to $1,059. Deduct $170.10 for Medicare, and that person would be left with $888.90 — just $37.40 more than in 2021.
From 2013 through 2022, Social Security COLAs have increased payments by 18.8 percentage points. Part B premiums have increased by 57.2 percentage points during the same period, according to the Senior Citizens League.
Credit for work
In order to get Social Security retirement benefits, you must have earned 40 work credits, or the equivalent of 10 years. Each credit is three months of qualifying work a year. To qualify, you need to make a minimum amount of money per quarter. In 2021, the minimum was $1,470 per quarter. In 2022, the minimum will be $1,510.
Subtraction for work
Social Security retirement benefits are generally designed for those who have stopped working. If you are earning money and collecting Social Security retirement benefits before you reach full retirement age, the SSA may withhold $1 in benefits for every $2 in earnings that exceed the threshold. In 2021, the threshold was set at $18,960 a year before the SSA began withholding money. That threshold rises to $19,560 a year in 2022. Social Security will help you calculate your full retirement age.
In the year in which you reach full retirement age, the SSA will withhold $1 for every $3 you earn above the limit. That limit was $50,520 a year in 2021 and will be $51,960 a year in 2022. The SSA stops withholding money the month you reach full retirement age.
You don’t lose the money that the SSA withholds. Social Security increases your monthly benefit at full retirement age, so that over time you recoup benefits withheld before you reached full retirement age.
Social Security is paid for by a 6.2 percent tax on employees, which is matched by a 6.2 percent tax from employers. (The self-employed pay a 12.4 percent combined tax.) The tax rate hasn’t changed. The amount of income that’s subject to that tax, however, has also increased in line with the COLA.
In 2021, you paid Social Security tax (called Old Age, Survivors and Disability Insurance, or OASDI) on up to $142,800 of taxable earnings. That limit will be $147,000 in 2022. Neither you nor your employer will pay OASDI taxes on amounts higher than that.
John Waggoner covers all things financial for AARP, from budgeting and taxes to retirement planning and Social Security. Previously he was a reporter for Kiplinger’s Personal Finance and USA Today and has written books on investing and the 2008 financial crisis. Waggoner’s USA Today investing column ran in dozens of newspapers for 25 years.