Though you may be known as a "baby boomer," you and 10,000 others like you are turning 65 each and every day, meaning retirement benefits like Social Security are becoming an important part of your life. Since it's likely Social Security benefits will play a crucial role in your financial future upon retiring, it's vital you stay aware of any changes and how they may impact you moving forward. To help you do this, here are some changes you can expect with Social Security benefits in 2022.
The Social Security Trust Fund is Eroding
As you've probably heard for many years now, the Social Security Trust Fund continues its path toward erosion. At its current pace, the excess Trust Fund revenue will be depleted by 2033. If this occurs, Social Security would then be able to pay out benefits that would be 80% of what current recipients are now receiving. Unless Congress intervenes between now and then, the 20% reduction in benefits is believed to be so drastic that it would put many seniors into poverty. If you think this could negatively impact you in a major way regarding your retirement planning, speak to your CPA about various options you may have for your money.
Full Retirement Age Has Increased
If you are still a few years away from retiring, it's important to remember that the full retirement age for Social Security has increased. Under the new rules that will take effect soon, anyone who was born in 1960 or afterwards will now have to wait until they are 67 to receive their full retirement benefits. However, if you have been planning on taking your Social Security benefits upon turning age 62, this has not changed in any way. But remember, by choosing to begin taking Social Security benefits at age 62, you will be receiving monthly benefits that more than likely will be drastically lower than if you wait a few more years, so keep this in mind when discussing your finances with your CPA.
2022 Social Security Cost-of-Living Adjustments
Popularly known as the COLA, the Social Security Cost-of-Living Adjustment will be going up substantially in 2022. Unfortunately, this is occurring due to the high inflation rates that are making prices of almost everything go up in a big way. For 2022, Social Security recipients will see a COLA of 5.9%, making it the largest one-year increase in 40 years. Also, you should keep in mind that depending on inflation numbers in the years ahead, your current as well as future Social Security benefits may increase each year if deemed necessary by the federal government. Though your CPA won't have a crystal ball to look into the future, they can use their experience to give you sound advice as to how current and future increases could impact many aspects of your finances.
Maximum Social Security Benefits Are Also Increasing
While the cost-of-living adjustments are going up for Social Security recipients, so too are the maximum benefits for those retirees who are near the very top of the income scale for Social Security. If your income is at least $147,000 or more, you can expect to see a small increase in 2022. As of now, regardless of your pre-retirement income, no individual at full retirement age can collect more than $3,345 per month in Social Security. This applies to the richest of people, even those such as Elon Musk or Jeff Bezos.
As for how delaying your retirement until age 70 can make a difference, consider that in 2022 your maximum Social Security benefit could increase to $4,194 per month. Needless to say, you and your CPA could put those several hundred extra dollars per month to work for you in a variety of ways.
More of Your Social Security Benefits will be Taxable
Yes, the IRS will come calling in 2022 to tax more of your Social Security benefits. However, the amount of taxes you will be paying on your benefits will depend on your income level and age.
If you have an individual income between $25,000-$34,000 or are married and have a combined income as a couple ranging between $32,000-$44,000 per year, a whopping 50% of your benefits may be taxable.
While 50% sounds like plenty when it comes to being taxed on your Social Security benefits, that's not the worst of it. Should you have an income level as an individual that exceeds $34,000 or are part of a married couple with an income exceeding $44,000 per year, the IRS can tax your Social Security benefits at a rate of 85%. After you've picked yourself up off the ground, consult with your CPA to find out how this will apply to your situation.
Social Security Benefit Estimates
While everyone wants their Social Security benefits, few take the time to keep up with their Benefit Estimate statements that are provided to them by the Social Security Administration each year. Filled with valuable information, you and your CPA can use these statements to see not only what your benefits are like at the moment, but also where they may be in the future.
Thus, whether you are planning on taking your retirement benefits at age 62 or want to wait until you turn 70, creating an account at ssa.gov will take only a few minutes and give you the information needed to plan out your retirement in regards to Social Security benefits.
Due to the many variables that will come into play regarding Social Security benefits in the years ahead, you should never take any chances with your finances and retirement planning. Rather than keep yourself in the dark and hope all goes well, schedule a meeting with your CPA to discuss the 2022 Social Security changes. By doing so, you'll get peace of mind and a much clearer vision of your retirement.