Thoughts & Updates
It has been a while since I wrote about Social Security. As a matter of fact, I do believe my very first blog in August 2016 was on the topic. Now over 5 years later it is making some news and warranting another blog (crazy to think I’ve been doing this that long). Lots to say so let’s get to it.
Change is coming:
There are a slew of notable changes coming to Social Security next year (2022). Here are the ones I think are worth highlighting.
COLA 5.9%-Boom, out of the gates hot. For those receiving benefits, your raise next year will be almost 6%. Pretty nice right? That is the highest increase since 1982. For those that are mathematically challenged, take your current benefit and multiply it by 1.059% and there you have your 2022 benefit. Now, although it all sounds hunky-dory (thanks Bowie) keep in mind this is because the cost of goods is going up. There is a major supply chain backup in our country and that includes oil/gas. So, brace yourself for higher prices next year, and a 5.9% increase to boot.
FICA taxable amount going up- Welp, no surprise here. The Social Security pool is running lower and lower, and they are increasing payments. What is left to do except increase us poor worker bees? In 2021, you are taxed on your first $142,800 for Social Security. This is why those making more get a 6.2% “raise” in their take-home pay during the year. For 2022, the government is increasing those taxable FICA wages to a nice cool $148,000. Surprised? “Not I,” said the cat.
FRA going up- For those born in 1960 or later your new full retirement age (FRA) is 67, an increase of 2 months. This truly mainly affects those that turn 62 in 2022. Why? Because this is a trend that will continue for many years to come. Thus, I already chalked it up in my mind that this 40-year-old will have to wait much later than 67 to receive his FRA. What this means for those closer to collecting is 67 is the age at which you can collect 100% of your designated benefit. Now, this does not hinder your ability to collect a reduced benefit as early as 62, or an increased benefit as late as 70.
New SS statement- I’m actually kinda excited about this one, and yes that makes me a total finance nerd. That said, that old ugly statement could use a facelift. Next year, there are sweeping changes to your statement. Most notably, instead of seeing an estimate for 3 years (age 62, FRA age, and age 70), moving forward, they’ll show you 9 different years with estimates! They’ll also include your SS disability benefit amount, and what your spouse and/or children would receive if you passed away. There will be more information on your earnings history, and formulas for calculating benefits. I’m not kidding when I say I can’t wait to scope mine out. If under age 60 you can check your new statements (when available) at www.ssa.gov, while those 60 years or older who have not created an online account will still receive paper statements.
Social Security Fund Running Out:
Two blogs for the price of one? It is your lucky day 😊. One thing I wanted to touch on briefly is the other big news from the summer on SS is that the trust fund will be depleted an entire year sooner (2033), by their estimates. This is due to many factors such as Covid, aging population, more people dying than being born, more money being pulled out that contributed, and our government’s propensity to beg, borrow and steal from the trust fund for the past few decades.
Should you be worried? I get this question all the time from clients and I think the simple answer is no. For starters, the doomsday scenario is – if it did run out benefits would be cut 20%, not ideal, but not zero benefits. Additionally, our nation has too many of its retirees and future retirees completely reliant on SS as their main source of retirement income. Simply put, the domino effect is so catastrophic we believe it couldn’t possibly be eliminated. Finally, it is political suicide to even consider getting rid of this program. It is one of the truly bipartisan issues that no side will be willing to touch.
So, what’s the likely outcome? I believe the first part of the blog touches on most of them (as does my very first blog). You will likely see smaller increases, later ages to collect, more income taxed for SS, higher taxes, or a combination of them all. It is just so stinking logical and will be a hotbed item for years to come.
Social Security in a nutshell
There are a few other smaller changes happening, but I wanted to use this precious real estate to focus on the changes I believe most impact our client’s and friends’ lives. In general, Social Security is a great and noble (and necessary) government program whether you believe me or not. The biggest issue, in my opinion, is there haven’t been many changes since it was first rolled out by President Roosevelt in 1935. That is nearly 90 years with minimal changes, and let’s face it – we are simply living longer.
Hope you enjoyed these updates and thoughts. As always, love your feedback, and please stay wealthy, healthy, and happy.
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