What to Expect in 2022
By Robert Marcell, CFP®
While we can’t see into the future and make exact predictions, there are some recent changes that we know will impact our finances at the beginning of this year. Changes to programs like Social Security, Medicare and retirement contributions will affect how much you can save during the upcoming year and the amount of money you’ll have during your retirement.
2022 Social Security Changes
This year, 70 million Social Security recipients will receive a 5.9% cost-of-living adjustment (COLA), which is the largest benefit increase since 1982. Rising prices for consumer goods (inflation) have driven this change. The annual COLA is designed to help retirees maintain their ability to purchase goods and services.
The Social Security Administration collects its premiums for its Old Age, Survivor, and Disability Insurance (OASDI) program by taxing a certain amount of your wages. In 2022, employees are required to pay a 6.2 percent Social Security tax on income up to $147,000, which is an increase from wages of $142,800 in 2021. This dollar amount is called the wage base limit and it has also increased steadily over the years. The benefit you will receive at your full retirement age is based on your work history in the 35 years you earned the most money.
When Social Security began the full retirement age was 65, but changes in the legislation in the 1980’s slowly increased the retirement age from 65 to 67 over a 22-year period beginning in 2000. In 2022, the full retirement age is now at the maximum of 67 years for those born in 1960 or later. During the last five years (2017 to 2021), the full retirement age for workers had increased by two months for each increase in birth year. Workers can still retire at 62 and receive reduced benefits, but the reduction in benefits is significant at 30 percent for someone just reach age 62 and retiring. For individuals with a full retirement age of 67, waiting three more years until they are 70 provides an additional 24 percent increase in benefits. Knowing these rules can help you better plan for your retirement income. If you work in retirement, there is also an increase in the amount you can earn before you lose early benefits. If you start to take benefits from Social Security before your full retirement age, you can earn $19,560 in 2022 and not lose any benefits. This amount has increased from 2021 when you were able to earn up to $18,960. If you earn more than that, Social Security deducts $1 from your benefits for each $2 you earn.
During the year you reach full retirement age you can earn up to $51,960 (up from $50,250 in 2021) and Social Security only deducts $1 of benefits for each $3 earned. Once you reach full retirement age, your earnings no matter how much they are, no longer reduce your monthly benefits. There is a silver lining to getting these benefits reduced. At your full retirement age, your benefit is recalculated and will increase because of the benefits you previously lost.
2022 Medicare Changes
Almost everyone on Medicare pays the standard premiums for Medicare Part B. These premiums cover most outpatient coverage and are increasing in 2022 from $148.50 to $170.10 each month. This 14.5 percent increase is associated with universal healthcare increases. The annual deductible will also rise from $203 to $233.
2022 Retirement Savings Changes
The IRS announced changes to the 401(k) limit that will make it possible to save more money for retirement. Beginning in 2022, the contribution limit for an employee that participates in 401(k), 403(b), and most 457 plans increased $1,000 to $20,550. You might consider reviewing your contributions to take full advantage of the higher limit.
What is the Takeaway?
While you are establishing an annual budget in January, be very clear on how these changes will affect you in 2022 and talk to your financial advisor if you have any questions.