Your Social Security Is Getting A Raise
Retirees who are receiving Social Security benefits will get a 5.9% boost in benefits
The Social Security administration every October announces the annual Cost-of-Living increase that Social Security recipients will receive starting in January, as well as the corresponding increase of the Medicare Part B premium. It is one of the most anticipated announcements for the millions who depend on their Social Security check every month.
Social Security Fun Facts
Before I get into this year’s COLA and Part B announcement, here are some facts and statistics from the Social Security Administration that you might find enlightening:.
As of March 2021, there were about 69.7 million people receiving Social Security checks every month.
Nearly 9 out of 10 U.S. citizens aged 65 or older benefit from Social Security.
Social Security keeps 15 million elderly Americans out of poverty.
The average monthly retirement benefit, for 2021, is $1,543 with the maximum benefit being $3,895.
The average disability benefit is $1,277.
At 6 million, California has the highest number of Old Age Survivors and Disability Insurance recipients, with Florida (4.7 million) and Texas (4.3 million) not far behind.
At 26.7%, Senator Joe Manchin’s state of West Virginia has the highest percentage of total population living off benefits.
People born in or after 1960 still can receive early retirement benefits at 62 but to receive full retirement benefits they must wait until age 67.
If you wait to take benefits until age 70 your benefit will increase by 8% per year for every year you delay.
U.S. workers retiring after 2035 will receive only about 75% of full benefits.
Yet the Social Security Trust Fund has earned $2.9 trillion in reserves.
Why Am I Getting A Raise?
In 1973 Congress passed legislation that provides a cost-of-living adjustment every year for Social Security and Supplemental Security Income (SSI) to keep pace with inflation.
The 1973 Social Security Act specifies a formula used to determine what the increase will be. It is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). They measure inflation from the third quarter of last year to the third quarter of this year, and that’s what determines if we see an increase or not.
In the third quarter of 2020 the CPI-W was calculated to be 253.412. The CPI-W for the third quarter of 2021 was 268.421. That’s a 5.9% difference. The COLA for 2022 is the highest increase since 1983 at 5.9%, or an average of $91.04 per month. Which will bring the average monthly Social Security benefit to $1,634.04.
The Second Shoe Drop…Medicare Increase
Medicare Part B premium is the second shoe to drop in October each year. Two years ago during the COVID pandemic Congress froze the premium at the base amount of $148.50. This year they could have caught up, but only increased it by one year.
This year’s base amount is going up $24 to $170.10. Those earning more the $91,001 (single) or $182,001 (couple) will pay more — but for most of us, $158.50 is the number that will be deducted from our Social Security check come January.
Now not everyone pays the base rate.
Higher premiums for enrollees with high-income
Since 2007, people who earn more than $85,000 ($170,000 for a couple) have paid higher Part B premiums (and higher Part D premiums) based on their income.
For the first time, the threshold for what counts as “high income” was adjusted for inflation as of 2020, increasing it to $87,000 for a single individual and $174,000 for a couple. And it increased again for 2021.
The 2021 Part B premiums for people with income above those thresholds see below:
For 2022, it is projected that the income threshold for IRMAA surcharges will be $91,000 for a single individual and $182,000 for a married couple.
2022 premium surcharge is based on 2020 tax return
The government determines whether you have to pay an income-related premium surcharge based on your income tax return from two years ago, since that is the most recent tax return they have on file at the start of the plan year. 2019 tax returns were filed in 2020, so those were the most current returns available when income-related premium adjustments were determined for 2021.
Part B deductible also increased for 2021, and will increase again in 2022
Medicare B also has a deductible, which increased to $203 in 2021, up from $198 in 2020. For 2022, the Part B deductible is $233. The Medicare Part B deductible only has to be paid once per year, unlike the Part A deductible, which has to be paid once per benefit period.
After the Part B deductible is met, the enrollee is generally responsible for 20% of the Medicare-approved cost for Part B services for the remainder of the year. But supplemental coverage (from an employer-sponsored plan, Medigap, or Medicaid) often covers these coinsurance charges.
About the Author
Erik Barnes, CFP®, is a fee-only financial advisor serving clients locally in Naperville, IL, and the surrounding Chicagoland area and throughout the U.S. He is a member of XY Planning Network, a group of fee-only financial advisors who focus on serving those in Gen X and Gen Y, as well as NAPFA, Fee-Only Network, and the Financial Planning Association. Erik has worked in financial planning for 20 years and takes great pride in helping clients on the road to retirement. When he’s not building financial plans, you can find Erik tinkering with his fantasy football roster or checking out one of the many food spots in Chicagoland.
Smarter Planning. Smarter Portfolios. Smarter Fees.