The Social Security Administration (SSA) recently announced that it will increase social security benefits by 2% in January 2022, compared to January 2021. This represents the biggest increase in monthly social security benefits in many years, which is welcome news to older Americans who rely on their monthly payments as a vital source of income to supplement other retirement savings and make ends meet during their later years of life. But what does this mean for the average American? Will you be receiving more money from Social Security in 2022 than you do today? How much more money will you receive, and what about your spouse?
What is the Social Security COLA – Cost of Living Adjustment
Each year, the federal government adjusts the minimum amount of income a person needs to maintain their standard of living with the number of dollars it takes to reach that. For those collecting social security benefits, this may result in higher monthly payments or lower taxes.
The 2022 Social Security cola increase will see beneficiaries receiving an additional $41 per month. The higher COLA is based on data from the Consumer Price Index, which calculates fluctuations in prices for goods and services as compared to previous years. In 2019, about half of retirees reported that they were not able to adequately cover their monthly expenses because their retirement income was inadequate.
How Is the COLA Calculated
It is important to know how the COLA is calculated. Each year, the Social Security Administration calculates a Cost of Living Adjustment, or COLA, which increases a retiree’s monthly payments.
They take into account inflation and wages to determine whether they will increase or decrease payments in order to keep up with current economic conditions. The key variable for calculating a COLA is the Consumer Price Index vs Wages (CPI- W), which measures inflation from one year to the next.
When Are Cost-of-Living Increases Paid
The 2019 Social Security Cost-of-Living Adjustment (COLA) will be 2.8%, increasing benefits by about $1,400 for most recipients. The COLA is calculated each year to adjust benefits for inflation. For 2020, the estimated COLA is 2%.
The next estimated COLA of 2% will be applied in 2022. This means that benefits would increase by about $1,440 for the average beneficiary in 2023 and $1,800 for a high earner (over $1 million).
Who Gets the Increases
Only retirees and their survivors who are receiving benefits from the Old Age, Survivors, and Disability Insurance (OASDI) will see an increase in their monthly payments starting next year. They’ll receive a 3.6% cost-of-living adjustment for those on the retirement program (except for survivor’s benefits) and a 2.8% COLA for those who receive disability or survivorship benefits.
It’ll be your first 3% or higher increase since 2012 and only your second one since 2002. This doesn’t mean you’ll get any more money than you already are; it just means that each month you get a little more because inflation is catching up to what was supposed to happen years ago.
What will the COLA increase be for 2023?
The COLA increase for 2023 is set to be 2.8%. This means if you make $1,000 a month in 2023, you will receive $1,028 per month in 2023, which is an increase of $28. If you make $2,000 a month in 2023, your monthly salary would increase by $56. If you earn $3,000 a month, the raise would be approximately $84.
These are The 38 States that Do Not Tax Social Security Pensions
Many workers do not know that their Social State Security retirement benefits are taxable for retirees who live in these 38 states. The states are Alabama, Alaska, California, Connecticut, Georgia, Illinois, Kansas, Maine, Massachusetts (exempt for teachers), Mississippi (limited exemption), Nebraska (limited exemption), New Mexico (limited exemption), Ohio (limited exemption), Oklahoma, Pennsylvania, and Virginia, etc(total of 38 States, list down below).
Remember to include these amounts when calculating taxes on your return. For example: if you live in California and retired this year you may owe $2 more a month in state taxes next year because of the increase to be calculated as a percentage of what you received in SS benefits.
The fact is that many people don’t understand how State income tax laws apply to their individual circumstances.
The final step in our series about the social security cut cola increase for 2022 was to look at how much more you can expect to receive, as a lump sum payment, than in years past.
Now that we have seen what this means for your income statement and your retirement account, let’s see how it would affect your check if you still worked full-time and were eligible for retirement benefits this year.
In general, you can expect an additional $1.70 each month in addition to any other earnings. However, some people may need a few extra cents or even a dollar or two more per month in order to cover their increased out-of-pocket costs–things such as prescriptions and home utilities.