It’s important to understand the legal and financial waters that a person will enter during their senior years. Social Security can be a critical piece of the puzzle, and there can be cost of living adjustments (COLAs) each year.
Since 2021 is winding down, a lot of people are anxiously awaiting the news about the 2022 COLA, and we will provide a preview here. But first, let’s look at the Social Security program from a broader overview to give you a solid understanding of the parameters.
You do not automatically become eligible for Social Security because you are an American citizen. Eligibility is earned through the accumulation of retirement credits, and you get these credits when you work and pay taxes.
In 2021, you get one credit for every $1470 that you have earned, and you can get as many as four credits a year. After you have 40 credits, you will be eligible for Social Security when you reach the appropriate age, and you will also qualify for Medicare when you are 65.
There is a provision for married people that do not have 40 credits. If you are in this position, you can potentially qualify for Social Security and Medicare on your spouse’s work record.
The age at which you become eligible for a full Social Security benefit depends on the year of your birth. People who were born between 1943 and 1954 become eligible when they are 66, so all of these folks can already receive Social Security.
For people born in 1955, the eligibility age is 66 years and two months, and it goes up by two months each year in this manner until it reaches 67 in 1960. Anyone who was born during that year or a later year will be eligible for a full benefit when they are 67 years of age.
If you delay the submission of your application, you will earn delayed retirement credits, and this will increase your benefit by 8 percent for every year that you wait. However, you no longer get credits after you are 70 years old, so there is no reason to delay any further.
You can also claim an early retirement payout when you are 62, but the benefit would be reduced by somewhere between 25 percent and 30 percent depending on the year of your birth.
There is another negative aside from the reduced benefit if you are still working. The first $18,960 that you make is exempt, but your Social Security payout would be reduced by one dollar for every two dollars that you make that is in excess of this amount.
2022 Social Security Cost of Living Adjustment
The Social Security COLAs are calculated through the utilization of the Consumer Price Index for Urban Wage Earners and Clerical Workers that is kept by the United States Department of Labor. When inflation is low, prices do not go up very much, and this is good on the one hand.
On the other hand, the cost of living increases are going to be minimal under these circumstances. As a result, the cost of living increase this year was just 1.3 percent, and it was 1.6 percent in 2019. There was no COLA at all in 2015, and it was .3 of a percent in 2016.
We are seeing some significant inflation at the present time, so the 2022 cost of living adjustment is going to be somewhere in the vicinity of 6 percent according to experts.