Pamela Kweller RSSA Staff
The Social Security Administration just announced the 2022 Social Security Cost of Living Adjustment (COLA) and it is a whopping 5.9 percent.
Beginning January 2022, more than 64 million Social Security beneficiaries will receive a 5.9% increase in their Social Security benefits.
According to the Social Security Administration, “The Social Security Act ties the annual COLA to the increase in the Consumer Price Index as determined by the Department of Labor’s Bureau of Labor Statistics.”
COLAs are calculated based on the increase in the CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers) in the third quarter of the current year compared to the increase in the CPI-W in the third quarter of the previous year. The third quarter includes July, August, and September.
Last year’s COLA was only 1.3% so this is much bigger! This is actually the largest COLA in 40 years. In 1982, there was a 7.4 percent COLA increase. There have even been years with a zero percent COLA. Over the last 13 years, there have been three years with a 0% COLA. Those years were 2009, 2010, and 2015.
Martha Shedden, President and co-founder of NARSSA, says, “The highest COLA in 40 years, a welcome increase for retirees. Although anticipated recently, it is still a surprising number given the pandemic and financial uncertainty the past two years.”
How will the COLA impact retirees?
The average monthly Social Security benefit is currently (for 2021) $1,565. With a 5.9% increase, the average beneficiary will expect to receive approximately $100 more each month. According to the newly released Social Security fact sheet, the average monthly Social Security benefit for 2022 will be $1,657.
The maximum monthly benefit for a worker filing at Full Retirement Age (FRA) is currently (for 2021) $3,148. With a 5.9% increase, the maximum monthly benefit will increase by almost $200. According to the Social Security fact sheet, the maximum monthly Social Security benefit for a worker filing at FRA for 2022 will be $3,345.
How will the COLA impact workers?
The COLA does not have a positive impact on everyone. For example, workers (and employers) will now be paying more into the Social Security program each month. For example, the maximum amount of earnings subject to Social Security taxes will be increased in 2022 from $142,800 to $147,000.
Additionally, it will take more income to earn one quarter of coverage. A minimum of forty quarters of coverage, also known as credits, are needed to qualify for Social Security. The credit may only be earned from a job that pays Social Security payroll taxes. You cannot earn more than 4 credits in one year and therefore, you must work a minimum of 10 years in order to earn those 40 credits. Currently (in 2021), the amount of earnings required for one credit is $1,470. With a 5.9 percent increase, the amount of earnings required for one credit in 2022 will be $1,510.