Ask Chuck: What is the impact of the Social Security increase?

Dear Chuck,

I’ll soon be getting a raise in my social security benefits. Do you think it will really make any difference? 

Worried Senior 

Dear Worried Senior, 

Although it may be new to you, getting an increase in retirement benefits is actually not new.

The Social Security Administration has been giving cost of living adjustments (COLA) since 1975. You are likely referring to the news that in 2022, recipients will receive a 5.9% COLA. It represents the largest increase in 40 years.

To properly answer your question as to whether this will really make any difference, I have to make a few assumptions: a. that you are asking about your personal financial benefits and b. that you are largely dependent upon this program for the majority of your retirement income. Social Security payments represent 90% of the income of one-fourth of older Americans. I will also assume that you receive the maximum benefit available. 

Experts believe that this increase is simply a means to attempt to keep up with inflation. This is government confirmation that inflation, though repeatedly called “transitory,” has indeed entered a new phase. My answer, therefore, is that this increase of approximately $197/month is not going to make any meaningful difference to your financial picture. However, if I assume you are asking about the difference it will make to our nation, that is a totally different answer. Let’s take a closer look.  

Other modifications to expect

Be aware of other changes in 2022: 

• Maximum earnings for working recipients under FRA before a reduction in benefits will be $19,560 in 2022 vs. $18,960 in 2021.
• Maximum SS monthly benefit for a worker retiring at FRA in 2022 will increase to $3,345 from $3,148 in 2021.
• Maximum earnings subject to the SS tax will increase to $147,000 in 2022 from $142,800 in 2021.
• Average SS benefit paid in 2022 increases to $1,657 from $1,565 in 2021.
• Disabled workers will receive a $76 increase. 

Taxable income? 

As the Motley Fool recently reported, taxes on SS income vary based on “provisional income,” which is the sum of non-SS income plus 50% of annual SS benefits. 

Impact on singles with provisional income:

• Under $25,000 — not taxed.
• Between $25,000 to $34,000 — taxed up to 50% of their benefits.
• Over $34,000 — taxed up to 85% of their benefits.

Impact on married couples with provisional income:

• Under $32,000 — not taxed.
• Between $32,000 to $44,000 — taxed up to 50% of their benefits.
• Over $44,000 — taxed up to 85% of their benefits.

More inflation? 

Tyler Durden asks: “What will happen to prices of goods and services as a result of that government-funded increase in benefits?” What are all the statistics signaling? Janet Yellen does not see high inflation easing until mid-2022, but others predict hyperinflation. David Blanchflower, of Dartmouth, and Alex Bryson, of University College London, believe that America has already entered a recession that could equal the 2008 financial meltdown. 

Social security is not so secure  

Newsmax reported on the significant cost to taxpayers this increase will represent not only in 2022 but for years to come. SS is the largest item in the federal budget, amounting to $1.35 trillion this fiscal year. 

Could the SS Trust Fund run out of money? In the same Newsmax article, Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget, says possibly — perhaps as soon as 2032. “The trajectory for Social Security was already an incredibly troubling one ... Spending is going to be higher, not just this year, but all years going forward.” She notes that there are a lot of challenges and that Congress is doing nothing to reform or strengthen the program. 

In some nations, retirement money is held in a private account as the taxpayer makes required contributions. Essentially in the United States, it is an obligation to pay (debt) based upon future contributions from other taxpayers. So, not only is keeping up with inflation a challenge but funding the program could become a future challenge as well. 

Trust and obey 

C.H. Spurgeon said, “The sovereignty of God is the pillow upon which the Christian rests his head.” God is worthy of our complete trust while we wisely manage what He provides. 

“He who dwells in the shelter of the Most High will abide in the shadow of the Almighty.
I will say to the Lord, “My refuge and my fortress, my God, in whom I trust” (Psalm 91:1-2 ESV).

“God is our refuge and strength, a very present help in trouble …‘Be still, and know that I am God. I will be exalted among the nations, I will be exalted in the earth!’ The Lord of hosts is with us; the God of Jacob is our fortress” (Psalm 46:1,10-11 ESV).

In these days of uncertainty, continue giving, saving and investing, while limiting spending. You should have an account that you can easily access in the event of a true emergency. Set aside enough money to cover 3-6 months of overhead. A crisis budget can help you prepare for higher costs brought on by inflation and can protect what you have set aside for retirement. If you have yet to retire, it is wise to get out of debt now and create more sources of future income. 

In my book, Seven Gray Swans, Trends that Threaten our Financial Future, I write about the challenges we are facing that are happening before our very eyes. I hope to help you prepare for and survive these events. You can order a printed copy of the book at Crown.org or an ebook at Amazon.com.