Each year, more and more people are putting an end to their working years and starting the transition into retirement. It is essential that retirees keep up to date on the latest rules and regulations regarding both Medicare and Social Security to ensure that they are getting the most out of the benefits they have earned.
Cost-of-Living Adjustments (COLA) + Other Social Security Increases
With inflation continuing to rise to the highest rates we have seen in 39 years, the annual Cost-of-Living Adjustment is of utmost importance to anyone receiving Social Security benefits. The average annual COLA increase has been 1.7% over the previous 10 years but starting in 2022, anyone that is already receiving a social security check will collect an extra 5.9% per month compared to 2021. This is the largest COLA increase since 1982 and increases the maximum benefit for a retired worker who retired at full retirement age to $3,345 a month for 2022. With the prices of goods and services rising rapidly, these changes will certainly help the 70 million Americans who rely on their monthly Social Security income.
The Social Security tax rate for 2021 was 6.2% and will remain the same for 2022 (12.4% for those who are self-employed). However, the maximum earnings on which these taxes are assessed will face an increase to $147,000, up from $142,800 in 2021. Based on this new change, the maximum an employee can pay in Social Security tax is $9,114 or $18,228 for self-employed people. In addition to this increase, there will also be an older full retirement age for those born in 1960 or later. Those that fall into this group will now have an FRA of 67. You can take your Social Security benefits as early as age 62, but at a reduced amount of 30% compared to what you could have received at full retirement age. Remember, the longer you can delay taking your Social Security benefit, the larger monthly benefit you will receive until you reach age 70.
Medicare Updates – Premium, Deductibles, IRMAA & More
There have also been a few significant changes regarding Medicare for 2022. Largely due to rising health care prices, along with other factors, there will be the largest Medicare Part B premium increase ever in 2022. Medicare Part B typically covers doctors’ visits/preventative care and will have a monthly premium of $170.10 in 2022 (up $21.60 from 2021). To go along with an increased premium, Medicare deductibles will be increasing as well. Last year, the annual Part B deductible was $203. For 2022, that deductible has increased to $233. Medicare Part A typically covers impatient hospital care, skilled nursing facilities, hospice, lab tests, surgery, and home health care. The Part A deductible for admission to a hospital will be $1556 in 2022, which is a $72 increase from what it was in 2021. Medicare Part D will also face a slight increase in it’s deductible, but it is based on where the enrollee lives and the plan that they have chosen.
IRMAAs and income thresholds will also incur a rise for 2022. An IRMAA is the additional monthly charge added to Medicare Part B & D premiums, which is based on the annual income of the enrollee. The updated IRMAA’s range from $68 to $408.20 for Part B and $12.40 to $77.90 for Part D. These are both small increases from the 2021 IRMAA amounts. The income thresholds related to Medicare premiums look at the enrollees’ MAGI or modified adjusted gross income. Medicare Part B & D premiums will be determined by the income related monthly adjustment amount, if an individual’s MAGI is over $91,000 (was $88,000 in 2021) or $182,000 for married couples (was $176,000 in 2021).
Keeping up with these developments can be quite challenging to maneuver. Social Security remains a huge source of income for a large portion of seniors across the United States and with roughly 20% of Americans enrolled in Medicare, it is important to understand the impact these modifications can have. We understand that each situation is different, and everyone deserves personalized answers to these difficult questions.