By Matt Gallagher
Your Finances
Matt Gallagher
As people approach their golden years and prepare to transition out from full-time work, personal and financial considerations begin to shift in a new direction. When retirees reach that milestone in their lives, questions regarding Social Security payments, Medicare and retirement funds are pushed to the forefront. But the information is not always easy to sift through.
According to data from Pew Research, the COVID-19 pandemic might have played a major role in accelerating the retirement of thousands of baby boomers. as the world shut down and uncertainty about illness, vaccines and employment status grew, baby boomers decided this might be a good time to make the leap towards retirement.
What should people know about changes to Social Security in 2022? Let’s look at some of the specifics.
Every year, the Social Security administration announces pertinent changes that will come into effect in the upcoming year. While your Social Security benefits are largely dependent on your lifetime earnings, they are also impacted by changes in wages, adjustments to inflation and other external factors. One of the factors that play a role in changes to Social Security checks is the cost of living as determined by the Consumer Price Index.
Almost 70 million people receiving Social Security in 2022 will see a cost-of-living adjustment reflected in their checks. This year, the adjustment means a considerable increase in Social Security benefits. Such a significant increase has not been seen since the presidency of Ronald Reagan in 1982.
Social Security recipients will see a cost-of-living adjustment of 5.9 percent, up from the 1.3 percent increase in 2021. Based on the average 2022 retirement benefit of $1,657, this translates to $92 more per month. For many retirees depending on this as their sole income, the increase is significant. But experts explain that some of that extra change will go directly toward buying goods with higher prices due to inflation and rising Medicare costs.
The earliest a person can claim Social Security benefits in 2022 is still the age of 62. However, that is not considered full retirement age. The Social Security Administration calculates your full retirement age based on your year of birth. For people born between 1943 and 1954, FRA is age 66. For those born in 1955, it inches up to 66 and 2 months and continues to inch up by a few months for people born between 1955 and 1960 until it settles at age 67 for those born in 1960 or later. When someone claims their benefits before their full retirement age, they get a reduced payout.
Working employees are taxed to fund Social Security, but there is a limit to how much of their wages can be taxed for this purpose. This limit is called the taxable wage base. That number also increased from $142,800 in 2021 to $147,000 in 2022.
The base premium increase of 14.5 percent forms another significant piece of the changes affecting Social Security recipients and retirees. Medicare Part B premiums were announced by the Centers for Medicare & Medicaid Services in late 2021. They will increase $170.10 in 2022, up from $148.50. This increase in premiums will take a bite out of Social Security benefits.
Health savings accounts are a saving grace for many Americans. Individuals who have self-only coverage will be eligible to increase their HSA contribution to $3,650 in 2022. Those with a family plan can contribute $7,300. These accounts only apply to people enrolled in a high-deductible health plan.
While Social Security recipients will receive higher payment in 2022, increasing premiums and inflation will also have considerable effects on how that dollar increase is spent. These adjustments are a direct reflection of the state of the economy, as inflation seems to be on the rise, hitting a 39-year high in November. With the cost of food, fuel and vehicles rising, people’s pockets are directly affected.
Matt Gallagher is a partner and head of business development at TrinityPoint Wealth. He can be reached at 203-693-8519 or mgallagher@trinitypointwealth.com.