For the most part, there is nothing good to say about inflation, and it is a frequently discussed topic these days. Many Social Security recipients are definitely impacted by rising prices, but there is some good news looming over the horizon.
Social Security Cost-of-Living Adjustments (COLAs)
Each year, the Social Security Administration can increase benefits to account for the cost of living. Calculations are based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The third quarter of the previous year is compared to the corresponding quarter of the current year to come up with the percentage.
We say that they “can” increase the benefit amount because there was no COLA in 2009, 2010, or 2015. This year, it took a big jump forward. The cost-of-living adjustment for the current calendar year was 5.9 percent. You have to go back to 1982 to see a larger increase. That year, there was a 7.4 percent COLA.
The way things are going, there will be a very significant increase for 2022. If inflation continues to rise at the rate that it has been going up this year, the adjustment will be 10.8 percent. This would be the third highest figure since this formula was implemented in 1975.
There is no way of knowing exactly where it will land, because the rate of inflation is still in flux. However, if inflation was to come to a complete halt right now, the increase would still be 7.3 percent.
Social Security Benefits
While we are on the subject, we will provide some general information about Social Security benefits. You can accept a reduced benefit when you are as young as 62, and the reduction will be between 25 percent and 35 percent depending on your birth year.
Speaking of birth year, the age of full benefit eligibility depends on the year you were born. It is 66 for people that are born between 1943 in 1954. It then goes up by two months per year until it maxes out at 67 years of age for people that were born in 1960 or any later year.
Your benefit amount is based on the 35 years during which you paid taxes on the most amount of earnings. In 2022, the average Social Security payout for an individual is $1540 per month. If you add the 10.8 percent possible increase, the figure would rise by $154 a month to $1694.
The maximum Social Security benefit for this year if you start to collect a benefit when you reach your full retirement age is $3345. It is not unlimited because there is a ceiling on the amount of income that can be taxed for Social Security purposes. This year, it is $147,000.
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Mr. McCann is licensed to practice before the courts of the State of Connecticut. He is a member of the American Academy of Estate Planning Attorneys.
Mr. McCann provides to his clients, trust and estate planning, and trust and estate administration services. Formerly, Mr. McCann was an adjunct professor of economics in the State of Connecticut Community College system, and a Commissioner of the Town of Simsbury Zoning Board of Appeals.