THE rise in inflation in the US is generating concern among many individuals across the country, but retirees may benefit from a bigger cost-of-living adjustment (COLA) in 2023.
Next year’s COLA is projected to be higher than the 5.9 percent for 2022 as a consequence of the spiraling Consumer Price Index (CPI).
According to the Senior Citizens League, the current projected COLA for 2023 is 8.9 percent, which is a whopping three percent more than in 2022.
The average monthly benefit from the COLA is currently $1,657, but this will climb to $1,804 in 2023 if the corrected number is used.
The CPI increased to as high as 8.5 percent for the 12-month period ending March 2022, the highest rise since the period ending December 1981.
Read our COLA 2022 increase live blog for the latest news and updates…
Increases on resource limits
The resource limit for households will increase by $250 to $2,500 for the continental states and the District of Columbia, Alaska, Hawaii, Guam, and the US Virgin Islands.
The resource limit for households where at least one person is age 60 or older, or is disabled, will also increase by $250 to $3,750.
Claiming full benefits
Your full Social Security benefit depends on the age you retire.
If you retire at 67, which is the full retirement age, in January 2022, your maximum benefit would be $3,345.
If you retire at age 62 in 2022, your maximum benefit would be $2,364, according to the Social Security Administration.
If you retire at age 70 in 2022, your maximum benefit would be $4,194.
The SSA also confirmed that the maximum amount of earnings subject to Social Security tax would increase this month.
This will increase from $142,800 to $147,000, following an increase in average wages.
Why you should retire at 70, continued
If you delay benefits for an additional 12 months, you’ll receive 108 percent of the monthly benefit and if you wait until 70, you’ll receive 132 percent.
If you fully take advantage of everything from your work and earnings history to delaying your claim — it’s possible you can earn the maximum Social Security benefit.
In 2022, the maximum benefit will be boosted to $4,194 a month.
Why should you retire at 70?
Waiting to retire at 70 before claiming Social Security benefits gives you more for not retiring at 62.
If you claim at 62, you could see your benefits reduced as much as 30 percent, according to the Social Security Administration.
If you wait until your full retirement age, you’ll get 100 percent of your monthly benefit.
Understanding COLA, part three
Inflation rates throughout the 1970s varied from 3.3 percent to 11.3 percent. In 1975, the COLA was increased by 8 percent, while inflation was at 9.1 percent.
In 1980, the COLA hit its highest point in history, at 14.3 percent, against a 13.5 percent inflation rate.
Small COLA increases of 2 percent to 3 percent per year were common throughout the 1990s, thanks to dramatically reduced inflation rates.
Even lower inflation rates in the early 2000s resulted in no COLA adjustments in 2010, 2011, and 2016.
Understanding COLA, continued
In 1975, Congress adopted a COLA provision that provided automatic yearly COLAs based on the annual increase in the CPI-W.
Prior to 1975, Congress enacted special legislation to boost Social Security payouts.
COLAs in 1975 were calculated using the rise in the CPI-W from the second to the first quarter of 1974.
They were based on increases in the CPI-W from the previous year’s first quarter to the current year’s first quarter from 1976 to 1983; since then, COLAs have been based on the CPI-W from the previous year’s third quarter to the current year’s third quarter.
Because inflation was significant in the 1970s, COLAs were utilized to safeguard compensation-related contracts, real estate contracts, and government benefits.
The CPI-W is determined by the Bureau of Labor Statistics (BLS), and it is used by the Social Security Administration (SSA) to calculate COLAs.
The COLA formula is calculated by multiplying the percentage rise in the CPI-W from one year’s third quarter to the next year’s third quarter.
On the SSA website, this information is updated on a regular basis.
What are Social Security credits?
To collect Social Security benefits, you must have met the minimum requirement of performing “enough work”.
The Social Security Administration (SSA) defines “enough work” as earning 40 Social Security credits.
In 2022, an individual will earn one Social Security credit for every $1,510 in covered earnings.
You can get a maximum of four Social Security credits each year, and you must earn $6,040 to get the maximum of four credits.
Therefore, to earn 40 credits you must work for at least 10 years.
You are able to earn more than 40 credits.
However, 40 credits is the minimum number you need to be eligible for Social Security benefits.
When did COLA begin?
Cost-of-living adjustments began when legislation was passed in 1973.
The intention is to use COLAs for Social Security and Supplemental Security Income (SSI) benefits to keep up with inflation rates, according to the Social Security Administration.
The COLA is calculated based on third quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
When the CPI-W drops or remains unchanged, Social Security recipients are generally not given a COLA.
In October 2021, the SSA said it would increase the COLA to 5.9percent this year.
It represents the largest increase since the 1980s.
What is delayed retirement credit, part two
You can begin to receive Social Security retirement benefits as early as age 62, but it will reduce your benefits by as much as 30 percent below what you would get if you waited to retire until your full retirement age.
If you wait until your full retirement age (66 for most people), you will be able to obtain your full benefits.
What is delayed retirement credit?
If you wait until age 70 to start achieving your benefits, the Social Security Administration will increase your benefit, since you gained delayed retirement credits.
The retirement benefits are then paid out until you die.
The age you begin receiving your retirement benefit affects how much your monthly benefits will be.
What was the 2021 COLA?
The 5.9 percent cost-of-living adjustment (COLA) for 2022 is a big jump from the 1.3 percent COLA in 2021.
The significant increase was driven by a rise in inflation over the past year.
Alternatives to COLA
Some have questioned the methodology used to determine the cost of living adjustment, according to TheBalance.com.
The SSA bases its COLA hikes on the CPI-W.
The spending habits of urban wage earners and clerical employees are used to create this index.
The index is made up of people who are employed and earning money. They aren’t retired people.
Are there other types of COLA?
Employees who are compelled to complete work assignments in places with a higher cost of living than their home city may get a temporary COLA from some employers, such as the United States military.
When the job assignment is completed, the COLA will expire.
Funding Social Security, part two
The SSA website says $1.001trillion, or 89.6 percent, of total Old-Age and Survivors Insurance and Disability Insurance income, came from payroll taxes in 2020.
The remainder was provided by interest earnings of $76billion (6.8 percent) and revenue from taxation of OASDI benefits $41billion (3.6 percent).
How is Social Security funded?
Social Security is funded through a dedicated payroll tax.
Employers and employees each pay 6.2 percent of wages up to the taxable maximum of $142,800 in 2021, while self-employed Americans pay 12.4 percent, according to the Social Security website.
Contacting the SSA, part two
Automated telephone services include:
- Requesting a benefit verification letter or replacement tax summary
- Requesting a replacement Medicare Card or applying for help with Medicare prescription drug costs
- Getting claim status
- Finding addresses for local Social Security offices
- Requesting a form to apply for Social Security cards or make changes
- Hearing information about SSI, COLA, taxes, payment delivery dates, direct deposit, fraud, and other Social Security services
- Updating addresses or phone numbers for Social Security benefits
If you’re deaf or hard of hearing and use TTY equipment, you can call the TTY number at 1-800-325-0778.
Best ways to contact the SSA
Many Social Security offices have been open only for in-person appointments for critical situations during the coronavirus pandemic.
The Social Security Administration said the best way to reach a representative for help is online at SSA.gov, or by calling 1-800-772-1213 between 8am and 7pm, Monday through Friday.
Wait times are typically shorter Wednesday through Friday or later in the day, according to the administration.
Automated telephone services are also available 24 hours a day.
SSI back pay, continued
In general, it takes three to five months to get approval, according to the SSA, meaning most applicants can get back pay.
Back payments are different than retroactive payments.
Retroactive payments cover the months before your application date and are not offered for SSI.
What is SSI back pay?
Getting approval for SSI can take months.
In some cases, you may qualify for payments for the period of time between your application date and the date you were approved.
If your initial application was denied, and you appealed and were approved, you may have even more incentive to apply for back pay, according to the website of Berger and Green, attorneys at law.
Are Medicare costs and COLA aligned?
The Congressional Research Service projects Medicare Part B premiums will spike from $148.50 to $157.70 per month.
According to the Senior Citizens League, healthcare costs and housing costs have gotten 145 percent and 118 percent more expensive, while COLA’s have increased Social Security checks by just 55 percent since 2000.
What is COLA?
The COLA, or cost-of-living adjustment, is intended to offset recent inflation, and a formula is followed to determine how much the amount increases or decreases each year.
Each year, the COLA calculation is based on data from the third quarter from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
If the CPI-W drops or stays the same, Social Security claimants generally do not receive a COLA.
But with the Bureau of Labor confirming a 5.4 percent price increase for the 12-month period that ended in September, Social Security and SSI recipients will see the 5.9 percent rise in COLA in 2022.
How does early retirement impact COLA?
If you choose to claim benefits before your full retirement age, you may receive less.
Waiting until full retirement age, which varies between 66 years and two months to 67 depending on when you were born, will give you a higher monthly payment.
Delaying your claim until age 70 will also help you receive maximum benefits.
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