7 Must-Know Facts About This Year's Social Security Benefits
Although most Americans are familiar with Social Security, some don’t understand how it actually works. They believe once they retire, Social Security will kick in automatically to cover their retirement expenses for the rest of their lives. Others think that it won’t contribute much to their retirement income. The truth is, for 1 in 4 retirees, Social Security will provide at least 90% of their income.
Social Security is an ever-evolving program. The definition is simple: you pay taxes while you’re working, then receive benefits after you retire. However, the details can change each year. This is certainly true for 2022 where a number of important Social Security metrics have adjusted due to rising inflation. Here’s a look at seven of the most important Social Security facts for 2022:
1) The Cost-of-Living Adjustment Rose 5.9%. Every year, the Social Security Administration (SSA) applies a cost-of-living adjustment to benefits based on the current rate of inflation. Because inflation rose in 2021, a 5.9% increase in benefits was applied in January 2022. This was the largest cost-of-living adjustment in 40 years since 1982’s 7.4% bump!
2) The Social Security Wage Base Increased to $147,000. (A $4,200 increase from 2021.) The SSA’s OASDI program establishes this wage base to determine how much of your salary is subject to Social Security tax. You would need to make a salary at or above $147,000, and then be required to pay $9,114 in taxes at the 6.2% tax rate. Your employer would also pay an additional 6.2% tax.
3) Maximum Payout for Social Security is $4,194. Whether you earn $147,000 (the wage base) or $10 million, you’ll still pay the same amount of Social Security taxes and will earn the same amount – which will be $4,194 towards your benefits.
4) The Maximum Earning Limit Is $19,560. This is the highest amount of wages you can earn while retired. Any additional wages are subject to taxation and may impact your benefits. Note: this only applies if you are collecting at a younger retirement age rather than a full retirement age, which for most is 67.
If you are younger than the full retirement age, the SSA will deduct $1 from your benefit for every $2 that you earn above the $19,560 earnings limit. For example, if you earn $29,560 and are under the full retirement age, your benefits will be reduced by $5,000. Those benefits are not lost though, they are simply deferred until your full retirement age.
5) Survivors, Children and Spouses May Be Able To Claim Benefits. Social Security pays a wide range of benefits, not just to retirees. Children of disabled, retired or deceased workers, may be eligible for benefits, as are widows or widowers of beneficiaries. Spouses can claim benefits worth up to 50% of the primary beneficiary’s payout, even if they never worked a day in their lives. Even ex-spouses may be entitled to this benefit, as long as they were originally married for at least 10 years and the person claiming spousal benefits isn’t remarried.
6) Waiting To Claim Benefits Can Boost Your Monthly Check. Delayed retirement affects your Social Security benefits. The increase is based on your date of birth and the number of months you delay the start of your retirement benefits. For example, if you start receiving benefits at age 66, you get 100% of your monthly benefit. At age 67, you’ll get 108% of the monthly benefit because you delayed getting benefits for 12 months.
7) You Have To Earn 40 Quarters of Coverage To Be Eligible for Benefits. To earn benefits, you qualify based on your work record. The SSA requires 40 “quarters of coverage” in order to receive benefits. Each year, you can earn up to four quarters of coverage, so for most workers, 10 years of employment are required to qualify for Social Security. For 2022, $1,510 in earnings qualifies for one quarter of coverage.
Resources:
Social Security Administration
USNews.com
