It’s the biggest raise for Social Security recipients in nearly 40 years when benefits were increased by 7.4 percent in 1982, following a bout of high inflation.
Also increasing is the amount of wages subject to Social Security taxes, the taxable minimum. Workers will now pay Social Security tax on wages of up to $147,000 in 2022, up from $142,800. This increase takes effect in January. A higher taxable minimum means that more wages will be liable for the 6.2 percent tax that goes to fund the program.
The increase in benefit checks is welcome news to retirees and others who depend heavily on Social Security. Inflation – transitory or not – is rising quickly in 2021, hitting those on a fixed income hard. For five straight months through September, costs on a typical basket of consumer goods have climbed at the fastest pace in 13 years, according to the Department of Commerce.
But while those higher monthly checks are a boon to some, the increased taxable minimum means that higher earners will also be taxed more heavily to fund Social Security, hitting them during a period of rapidly rising costs.
Social Security recipients are typically notified in December about their new benefit amount, and beneficiaries can also check their personal my Social Security account online for details.
How this boost compares to recent increases in COLA
As of August 2021, the average Social Security check was $1,437.55, though the average retired worker received $1,558.54 each month. These benefit checks rise over time, and the rate of increase is based on the Consumer Price Index, specifically the index for urban wage earners and clerical workers, also known as CPI-W. With the newly announced increase, those figures would rise to $1,522.36 and $1,650.49, respectively.
In recent years, the COLA increase has been rather small or even non-existent.
Here’s the announced increase over the last 10 years.
|Year||COLA increase||Year||COLA increase|
Source: Social Security Administration
So 2021’s announced increase is well above what Social Security recipients have enjoyed in the last decade. While benefits may rise, they’re not adjusted downward. Instead, Social Security does not announce an increase in some years, as was the case in 2010 and 2015.
Critics argue that the COLA does not accurately reflect the rising costs to retired Americans, so it’s more important than ever that near-retirees carefully consider when to file for their benefits. The wrong decision could cost you thousands of dollars over your retirement years.
Here’s how to estimate your benefits in retirement based on your salary and retirement age.