How Rising Cost of Living Will Affect Social Security

Finance expert Sandra Block of Kiplinger’s Personal Finance magazine looks at how a rising cost of living will affect Social Security, including the 2022 COLA adjustment, Medicare changes, thresholds, the earnings test, and more.

If you receive benefits, you’ll get a significant raise in 2022 – and high earners will owe more in payroll taxes.

Social Security beneficiaries will receive a 5.9% cost-of-living adjustment in their Social Security benefits in 2022, the biggest jump since 1982, when benefits rose 7.4%. In 2021, the COLA was just 1.3%. The average monthly benefit will rise from $1,565 to $1,657 in 2022, or $92 a month. The average monthly payment for a married couple who are both receiving benefits will increase to $2,753, from $2,599.

But given price hikes for everything from gas to restaurant meals, some seniors may discover that the pay raise will fall short of increases in their cost of living – particularly when health care costs are taken into account.

Medicare Part B premiums, which cover doctor visits and outpatient services, are rising to $170.10 per month in 2022, up from $148.50 the year before, according to the Centers for Medicare & Medicaid Services. High earners who are subject to the Medicare Part B surcharge will pay $238.10 to $578.30 per month in 2022, up from $207.90 to $504.90 in 2021. The average premium for Medicare Part D, which covers prescription drugs, will be $33 per month in 2022, compared with $31.47 in 2021.

Higher thresholds for workers. The amount of earnings subject to the Social Security payroll tax (6.2% for employees and 6.2% for employers) will rise about 3%, to $147,000, from $142,800 in 2021. Earnings above the $147,000 payroll cap aren’t subject to the Social Security tax.

Social Security beneficiaries who have a side gig or part-time job will be able to earn a little more before they’re subject to the earnings test. If you claim benefits before you reach your full retirement age – 66 for people born between 1943 and 1954 and gradually rising to 67 for those born later – Social Security will deduct $1 for every $2 you earn above $19,560 in 2022, up from $18,960 the year before. In the year you reach your full retirement age, Social Security will deduct $1 for every $3 you earn above $51,960 in 2022, up from $50,520 in 2021. Once you reach your full retirement age, the earnings test disappears.