Whether you're paying in or receiving benefits, Social Security impacts every American. And with significant changes on the horizon for 2022, both workers and retirees can expect to see a difference. Here are three big changes coming to Social Security in 2022 and whether you can count on them when it comes time for you to retire.
1. Recipients Will See a Large Cost of Living Adjustment
In 2022, the estimated monthly Social Security benefits for all retired workers jump from $1,565 to $1,657. That's thanks to an epic 5.9% cost of living adjustment (COLA), the largest in almost 40 years.
But before retirees run out to spend their extra cash, it's critical to recognize that the COLA is due to increased inflation. That means prices are increasing too, so the extra benefit may not go as far as it did several years ago. Instead, retirees could use the money to pay off credit cards and other variable-interest debts in case interest rates rise in the coming year.
2. High-Earners Will Pay More
Income earned above a certain point, referred to as the "wage base" limit, is not subject to taxes. But in 2022, the wage base limit is increasing from $142,800 to $147,000. And that means people earning money in that range will see more of their money going towards the 7.65% Social Security tax. And those who are self-employed will take more of a hit since they'll need to cover both the employee and employer portions.
3. Full Retirement Rate is Rising
Many people may know that you can technically begin claiming Social Security at age 62, but the benefits will be dramatically reduced. The retirement age is 67 to receive the full payout in 2022, up from 66 and 10 months in 2021. But retirees can still defer to age 70 to get the maximum benefit.
Can Younger Workers Count on Social Security?
Younger workers may have heard that Social Security may be a thing of the past when they're ready to retire in 20 or 30 years. And the latest report from the Social Security Administration indicates reserves will be depleted by 2034, with funding coming solely from income tax in subsequent years. But the major downside is this income tax funding may only cover up to 78% of benefits instead of the 100% retirees are seeing today.
That means millennial and Gen Z workers will need to sock away more cash during working years to cover a potential gap that older generations have filled with Social Security. Younger works can combat a dwindling Social Security fund by:
- Putting as much as possible into tax-advantaged retirement accounts such as a 401(k), 457, or 403(b).
- Independently funding a traditional or Roth individual retirement account (IRA).
- Creating ongoing income streams through investment in real estate, stocks, ETFs, or passive-income-producing side hustles.
While 2022's Social Security changes are huge, they are decidedly more meaningful for those currently drawing from Social Security or planning to take benefits in the coming years. Younger folks may find that planning for a retirement sans Social Security benefits is the surest way to position yourself for a stable retirement. That way, any benefits the system can afford to pay are simply a bonus.
Press Release Service by Newswire.com
Original Source: Credello Discusses 3 Big Social Security Changes Coming in 2022
