The 5 Biggest Social Security Changes on the Horizon in 2022

In 2022, Social Security will look different than it does this year. Every household needs to be prepared for the changes, as it’s not just retirees who could be affected.

So, what are the biggest changes to be aware of with one of the country’s most popular entitlement programs? Here are five of them.

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1. There’s a higher average benefit

In 2021, the average benefit retirees received was $1,565. In 2022, the average benefit will be $1,657. Average benefits are increasing because of a 5.9% cost of living adjustment (COLA) applicable to all Social Security benefits.

But, even after this benefit increase, the new average benefit will offer just $19,884 in annual income. For the vast majority of seniors receiving income close to the average (or below it), benefits will not provide nearly enough to live on.

Seniors should remember that Social Security checks replace only about 40% of income, so they must be supplemented with another funding source.

2. There’s a higher maximum benefit

The maximum Social Security benefit is also going up next year. The maximum a retiree can receive at full retirement age will be $3,345 per month — up from $3,148 per month in 2020.

A maximum benefit exists because retirement income is based on average monthly income during a worker’s 35 highest-earning years — but only income up to a certain threshold counts.

To get the maximum monthly benefit, a retiree would have needed to earn the maximum countable income for at least the 35 years of work included in the Social Security benefits formula.

3. There are new rules for Social Security taxes

As mentioned above, only income up to a certain threshold is counted when Social Security benefits are calculated. That threshold is called the “wage base limit.” The wage base limit also caps the amount of income subject to Social Security tax.

In 2021, for example, the wage base limit was $142,800. Anyone who earned above that amount paid Social Security taxes only on $142,800 of income, so anything earned above that wasn’t subject to the tax.

In 2022, however, the wage base limit will go up to $147,000. So workers who have an income above $142,800 will be taxed on more of their money — potentially as much as $4,200 more.

Workers pay a 6.20% tax on Social Security (with their employer covering the other half), so their tax bill for retirement benefits could increase by $260.40. Self-employed workers who pay the full amount of Social Security tax could end up owing $520.80 more.

4. There are new rules for earning work credits

To become eligible for Social Security checks, workers have to earn 40 “work credits” over their careers. Paying Social Security taxes on income is how work credits are earned. A maximum of four credits can be earned each year, and there’s a certain amount of money you must make to earn each one.

In 2021, you could earn a work credit by earning $1,470. But in 2022, you’ll need to earn $1,510 to earn each credit. That means your income will need to be a little higher next year to qualify for work credits that entitle you to future benefits.

5. The rules for working while getting benefits are changing

Finally, there are different rules for retirees who want to work while simultaneously getting benefits.

Nothing is changing for seniors who have already reached full retirement age, as they can always work as much as they want with no impact on their checks. But those younger than FRA who are earning a paycheck are subject to forfeiting some of their benefits if they earn too much. And they’ll be impacted by the change to the rules.

In 2021, seniors who wouldn’t hit FRA at any point during the year would begin losing $1 in benefits for each $2 in earnings above $18,960. In 2022, these retirees will be able to earn as much as $19,560 before they start to forfeit benefits.

Those who are reaching FRA at some time during the year will be allowed to earn $51,960 per year in 2022 before losing $1 in Social Security income for every $3 extra they make. This is up from $50,520 in 2021.

These changes will affect both current and future retirees, so everyone needs to be aware of them to understand what to expect from Social Security in 2022.

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