An employee watches as checks run through a printer at the US Treasury Printing Office in Philadelphia.
William Thomas Cain | Getty pictures
The new year will introduce larger social security checks for many recipients from this month.
It is as if a record 5.9% cost of living adjustment, or COLA, takes effect.
This is the largest annual increase in around 40 years. In 2021[ads1], benefits increased by only 1.3%.
The average retirement benefit will be about $ 92 per month higher – to $ 1,657 from $ 1,565 last year.
Nevertheless, higher Medicare Part B premiums may reduce the size of these checks, while rising inflation may cut their purchasing power.
When 2022 COLA starts
Monthly social security payments are largely distributed to the recipients based on their date of birth.
If your birthday falls 1st through 10th of your month of birth, your benefits will be paid monthly on the second Wednesday. This month falls on January 12th.
If you were born between 11th and 20th in the month, your checks are paid out on the third Wednesday – or January 19 this month.
If you were born between 21st and 31st, the benefits are paid on the fourth Wednesday. It falls on January 26 this month.
How to find out how much you want to receive
You do not necessarily have to wait for your January check to know your monthly performance for 2022.
Most beneficiaries can access this information online through a My Social Security account. The Social Security Administration usually also sends mail messages.
Alternatively, you can also calculate your monthly benefit amount for 2022 on your own.
Take the monthly benefit from this year and multiply it by 1,059 to find out how much increase you want to see. Then deduct your estimated Medicare Part B premium.
The amount you pay in Medicare Part B premiums is based on your income level using the modified adjusted gross income from your tax return two years ago.
The standard Part B premium for 2022 will be $ 170.10, an increase of 14.5% from $ 148.50 last year. People who have income above certain thresholds pay an additional amount, known as an income-related monthly adjustment amount. Monthly premium payments are often deducted directly from the social security benefit checks.
When you might want to make adjustments
Additional income can mean higher taxes.
Many retirees have a mix of income from social security benefits and other investments, typically 401 (k) plans or individual retirement accounts.
Social security recipients with combined income above certain thresholds – starting at $ 25,000 for individuals or $ 32,000 for couples – can pay taxes on up to 85% of their benefits. (Combined income includes adjusted gross income, non-taxable interest income and half of social security benefits.)
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It often makes sense to reduce withdrawals from other taxable accounts and therefore reduce the amount of social security benefits that end up being taxable, said Joe Elsasser, founder and president of Covisum, a software company that requires social security.
“When you have a greater concentration of social security benefits in relation to other income, you tend to have a much more tax-efficient overall picture,” said Elsasser.
Alternatively, if your income has decreased, you may want to contact the Social Security Administration to see if your Medicare Part B premium can be reduced.
Why benefits may not increase as much next year
The last time COLA was almost as high was in 2009, when performance increased by 5.8%. But for the next two years, the annual adjustment was zero.
The reason: The cost of living adjustment is calculated each year based on the consumer price index for urban employees and office workers, or the CPI-W, a government measure for changes in certain prices.
If that index does not go up as much, neither will COLA. But the good news is that it will mean that inflation is lower, and that your money may have more purchasing power.