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People who collect Social Security are about to see bigger checks.
The cost of living adjustment in 2022 will be 5.9%, the Social Security Administration said on Wednesday. The increase, which will help beneficiaries cope with rising costs due to inflation, is the largest increase in about 40 years.
The adjustment will mean bigger checks for more than 70 million Americans. The roughly 8 million Americans on Supplemental Security Income, or SSI, will see the change happen on December 30, while about 64 million of those on Social Security will see the increase in January.
The 2022 or cost of living adjustment will add about $ 92 per month to an average retirement benefit of $ 1,565 per month, by some estimates.
“The cost of living adjustment is an automatic adjustment every year and is one of the most valuable features of Social Security,” said Nancy Altman, president of Social Security Works, an advocacy group focused on expansion of benefits.
Here’s what grantees need to know about this year’s COLA.
What actions should you take?
People already on Social Security do not have to do anything to get the increase – the checks will be automatically adjusted.
Before that happens, however, beneficiaries may want to review their monthly budgets and see if they can use the extra money to use.
“They really need to look at the numbers and what this increase means to them, what it will mean for their monthly check,” said certified financial planner Diahann Lassus, managing director of Peapack Private Wealth Management, based in New Providence, New Jersey. . Having extra money each month can help some people pay off debt or put some of it in an emergency savings fund, she said.
“It’s a bit like when you work and you get a raise – is there other things you can do for yourself? Lassus said.
Inflation, Medicare will erode adjustment
Of course, people on social security should understand that COLA does not necessarily allow them to spend more or have a bigger budget, but to keep their cost of living at the same level as prices go up due to inflation.
Right now, the prices of things like rent, gasoline, utilities, and food have gone up due to inflation.
Also, those on Medicare or Medicaid are unlikely to see a full 5.9% increase because of the premiums associated with health care. Premium increases for Medicare Part B, for example, are due in November. The latest report from Medicare administrators estimates a $ 10 increase in Part B, bringing the monthly rate to $ 158.50 for 2022 from $ 148.50.
These payments are usually taken out of social security and can weigh on the adjustment. However, a special rule called the disclaimer protects people from small Social Security checks due to Medicaid and Medicare.
“You might not get much more because of the health insurance premiums,” Altman said. Once the bonuses are announced, beneficiaries are expected to receive a letter from the Social Security Administration in December outlining their checks for 2022, she added.
Taxes can go up
If Social Security checks are your only income, there usually won’t be a change in taxes, according to Trenda Hackett, CPA and technical tax writer in the tax and accounting industry at Thomson Reuters.
However, if you are someone who taps into other retirement savings besides Social Security, or if you work and collect benefits, some of your checks may become taxable, depending on your other income.
“Taxpayers who receive other sources of income above the threshold amounts in addition to Social Security benefits should be prepared to see an increase in their tax bill if their income is expected to exceed the base amount,” said she declared..
To avoid any surprises at tax time, it may be a good idea to consult a tax advisor now to make sure you know how the adjustment will affect your taxable income.
There may not be another big adjustment for a while
Just because there’s a record adjustment this year doesn’t mean people on Social Security should expect similar increases in the future.
In fact, the big jump in 2022 may indicate that there won’t be any big adjustments in the years to come. The last time there was a similar increase of 5.8% in 2009, there was no adjustment for the next two years.
“People shouldn’t be saying, ‘Oh well, this is going to happen every year,’” Altman said.
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