A MASSIVE benefit increase estimate for retirees could become a reality in 2023.
The current projected COLA for 2023 is 8.9 percent, according to the Senior Citizens League.
That is an impressive three percent more than in 2022.
The average monthly benefit from the COLA is currently $1,657 but would climb to $1,804 in 2023 if the estimated increase occurs.
The CPI increased to as high as 8.5 percent for the 12-month period ending March 2022, the highest rise since the period ending December 1981.
Read our COLA 2022 increase live blog for the latest news and updates...
How is Social Security funded?
Social Security is funded through a dedicated payroll tax.
Employers and employees each pay 6.2 percent of wages up to the taxable maximum of $142,800 in 2021, while self-employed Americans pay 12.4 percent, according to the Social Security website.
What is the Social Security tax limit for 2022, continued
The tax rate for 2022 earnings sits at 6.2 percent each for employees and employers.
So individuals earning $147,000 or more in 2022 would contribute $9,114 to the OASDI program, and their employer would contribute the same amount, according to the Social Security Administration.
For those who are self-employed, the OASDI tax rate is 12.4 percent.
What is the Social Security tax limit for 2022?
Social Security has an Old-Age, Survivors, and Disability Insurance (OASDI) program to limit the number of earnings subject to taxation.
This is the maximum amount of Social Security tax an employee will have withheld from their paycheck.
The limit changes year to year depending on the national average wage index.
For money earned in 2022, the taxable maximum, as it is also called, is $147,000.
This is an increase from the previous amount of $142,800 in 2021 and means that workers on high salaries will be paying tax on more of their income.
When did COLA 2022 increase take effect?
The cost-of-living-adjustment (COLA) rise of 5.9 percent came into force on January 1, 2022.
The COLA is calculated based on data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which measures changes in the cost of popular goods and services.
2023 COLA could be larger than 2022
At least one group has predicted that the cost-of-living adjustment for Social Security recipients in 2023 might be as high as 7.6 percent or 8.9 percent, significantly higher than this year’s, which is already the highest in decades.
The Senior Citizens League, a non-partisan advocacy group, provided the 2023 COLA projection.
According to GoBankingRates.com, it based its forecast on the most recent consumer price index data.
How is COLA calculated?
“COLAs are based on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). CPI-Ws are calculated on a monthly basis by the Bureau of Labor Statistics,” the Social Security Administration shared.
Understanding COLA, part three
Inflation rates throughout the 1970s varied from 3.3 percent to 11.3 percent. In 1975, the COLA was increased by 8 percent, while inflation was at 9.1 percent.
In 1980, the COLA hit its highest point in history, at 14.3 percent, against a 13.5 percent inflation rate.
Small COLA increases of 2 percent to 3 percent per year were common throughout the 1990s, thanks to dramatically reduced inflation rates.
Even lower inflation rates in the early 2000s resulted in no COLA adjustments in 2010, 2011, and 2016.
Understanding COLA, continued
In 1975, Congress adopted a COLA provision that provided automatic yearly COLAs based on the annual increase in the CPI-W.
Prior to 1975, Congress enacted special legislation to boost Social Security payouts.
COLAs in 1975 were calculated using the rise in the CPI-W from the second to the first quarter of 1974.
They were based on increases in the CPI-W from the previous year’s first quarter to the current year’s first quarter from 1976 to 1983; since then, COLAs have been based on the CPI-W from the previous year’s third quarter to the current year’s third quarter.
Because inflation was significant in the 1970s, COLAs were utilized to safeguard compensation-related contracts, real estate contracts, and government benefits.
The CPI-W is determined by the Bureau of Labor Statistics (BLS), and it is used by the Social Security Administration (SSA) to calculate COLAs.
The COLA formula is calculated by multiplying the percentage rise in the CPI-W from one year’s third quarter to the next year’s third quarter.
On the SSA website, this information is updated on a regular basis.
Why you should retire at 70, continued
If you delay benefits for an additional 12 months, you’ll receive 108 percent of the monthly benefit and if you wait until 70, you’ll receive 132 percent.
If you fully take advantage of everything from your work and earnings history to delaying your claim — it’s possible you can earn the maximum Social Security benefit.
In 2022, the maximum benefit was boosted to $4,194 a month.
Why should you retire at 70?
Waiting to retire at 70 before claiming Social Security benefits gives you more for not retiring at 62.
If you claim at 62, you could see your benefits reduced as much as 30 percent, according to the Social Security Administration.
If you wait until your full retirement age, you’ll get 100 percent of your monthly benefit.
Four changes every year
There are at least four changes that occur every year when it comes to Social Security:
- Cost-of-living adjustments
- Earnings test limit
- The value of a work credit
- Social Security tax limit
How kids can get SSI benefits
Once a parent has worked for 10 years or otherwise earned Social Security eligibility, their children are eligible for benefits if:
- The parent is either disabled or retired
- The child is unmarried and younger than 18
- The child is 18 or older and has a disability that began before they turned 22
- The child was previously receiving at least half of their financial support from the qualifying parent
When did Social Security begin?
Franklin D. Roosevelt signed the Social Security Act on August 14, 1935, according to the Social Security Administration.
In January 1937, taxes were initially collected, and the first one-time lump-sum payments were paid in the same month.
In January 1940, regular monthly rewards were established.
Social Security COLA increase and SNAP benefits
Millions of Social Security beneficiaries are getting larger payments in 2022.
The Social Security Administration (SSA) increased its cost-of-living adjustment (COLA) to 5.9 percent.
The increased Social Security payment was reflected in the January 2022 check.
Social Security changes: workers to pay more taxes
Alongside the COLA raise, the SSA also confirmed that the maximum amount of earnings subject to Social Security tax increased in January.
This went up from $142,800 to $147,000, which came following an increase in average wages.
It means workers on high salaries are now paying tax on a larger proportion of their earnings.
We explain why the COLA increase is bad news for retirees and future claimants.
Social Security changes: raise for disabled Americans
The 5.9 percent COLA increase also applies to Social Security Disability Insurance (SSDI).
In fact, the average monthly benefit for disabled workers has gone up by $76 – from $1,282 to $1,358 a month.
SSDI aims to provide relief for those with disabilities who can no longer work, or at the same capacity as once before.
The benefit aims to replace a portion of the qualifying worker’s salary.
Social Security changes: raise for retirees
In October, the Social Security Administration (SSA) confirmed the cost-of-living adjustment (COLA) would increase by 5.9 percent in January.
It means the average 2022 check for a retired worker has increased by $92 – from $1,565 to $1,657 a month.
Meanwhile, a typical couple’s benefits have risen by $154 – from $2,599 to $2,753 per month.
Social Security claimants are usually notified by mail starting in early December about their new benefit amount.
Social Security changes: earnings limit increase
If you work while collecting Social Security benefits, then your benefits may be reduced, depending on how much you earn.
If your income is more than $18,960 during 2021, the SSA will withhold $1 for every $2 you earn over the limit if you’re below the full retirement age.
However, starting this year, this threshold has increased to $19,560.
If you reach full retirement age in 2022, you’ll be able to earn $51,960 – up by $1,440 from the 2021 annual limit of $50,520.
In that event, $1 is withheld for every $3 earned over that threshold.
If you were born in 1960 or later, your full retirement age is 67. For others, it’s 66 and a specific number of months.
Alternatives to COLA
Some have questioned the methodology used to determine the cost of living adjustment, according to TheBalance.com.
The SSA bases its COLA hikes on the CPI-W.
The spending habits of urban wage earners and clerical employees are used to create this index.
The index is made up of people who are employed and earning money. They aren’t retired people.
What is delayed retirement credit, part two
You can begin to receive Social Security retirement benefits as early as age 62, but it will reduce your benefits by as much as 30 percent below what you would get if you waited to retire until your full retirement age.
If you wait until your full retirement age (66 for most people), you will be able to obtain your full benefits.
What is delayed retirement credit?
If you wait until age 70 to start achieving your benefits, the Social Security Administration will increase your benefit, since you gained delayed retirement credits.
The retirement benefits are then paid out until you die.
The age you begin receiving your retirement benefit affects how much your monthly benefits will be.
What are Social Security credits?
To collect Social Security benefits, you must have met the minimum requirement of performing “enough work”.
The Social Security Administration (SSA) defines “enough work” as earning 40 Social Security credits.
In 2022, an individual will earn one Social Security credit for every $1,510 in covered earnings.
You can get a maximum of four Social Security credits each year, and you must earn $6,040 to get the maximum of four credits.
Therefore, to earn 40 credits you must work for at least 10 years.
You are able to earn more than 40 credits.
However, 40 credits is the minimum number you need to be eligible for Social Security benefits.