The Social Security Administration announced today benefits will see a cost-of-living adjustment (COLA) of 5.9%– the largest increase since 1982. To put it in perspective, the average increase over the past decade has been only 1.4%. This increases the maximum retirement benefit at full-retirement age from $3,148 per month currently ($37,764 annually) to $3,345 per month ($40,140). The 8% increase annually from full-retirement age until 70 years old is still in play.
In addition to the increase in benefits, the amount of wages subject to Social Security taxes is also increasing. Workers will now pay Social Security tax on wages of up to $147,000 in 2022, up about 3% from 2021 ($142,800). This higher taxable minimum means that more wages will be subject to the 6.2% tax that goes into the program (12.4% if you are self-employed). It is also important to note the tax thresholds are not adjusting for wage and price growth, meaning the bump in benefits could push beneficiaries into a higher Social Security tax bracket.
Social Security is one of the few fixed-income sources with a cost-of-living adjustment that keeps up with inflation. Many fixed income sources such as your employer pension stay at a fixed benefit and will not increase with inflationary pressure. Now, whether or not you “feel” like you are getting more benefit will depend on how inflation takes shape next year.
As a firm this is something we continue to monitor and invite any conversations or questions this may spark as you consider this in context of your financial picture. We are here to be a resource for you or anyone you know who may benefit from our approach.