Social Security Payments Could Be Heading Higher Because Of Inflation
- Social Security determines if it will award a COLA increase every fall.
- Rising inflation suggests this year’s COLA increase could be the highest in over a decade.
- Despite a COLA increase, seniors may still feel the squeeze of higher costs.
Your wallet may get a little thicker next year thanks to Social Security‘s annual cost-of-living increase, or COLA.
Every fall, the Social Security Administration determines whether to award a COLA increase depending on how much Americans are paying for specific goods or services. This year, its annual review could result in the biggest increase to Social Security income in over a decade. Read on to learn how Social Security decides how to award COLA increases and how big the increase to your income could be in 2022.
Even With Gasoline Prices Plunging One Set Of Rising Prices Elsewhere Could Give Retirees A Raise Come January
The coronavirus pandemic has put strain on everyone, but retirees have a lot more to worry about than others. Older people are at greater risk if they catch the COVID-19 disease, and they’re also more likely to have financial challenges. Many retirees live on fixed incomes, with most or all of their money coming from Social Security.
Every year, Social Security recipients get cost of living adjustments designed to take changing prices for essential goods and services into account. Based on the plunge in oil prices during February, it seemed likely that falling energy costs would lead to a complete lack of inflation this year over 2019, which is what goes into the calculation of how much of an increase Social Security benefits see. Yet the most recent inflation data showed a countervailing force that’s pushing prices higher — and that could lead to a positive COLA for 2021 after all.
Calculating The Dollar Amount Of Your 2020 Social Security Cola Increase
The 1.6% COLA increase will be about $24/month for the average retired worker, and about a $20 increase per month for the average disabled worker in Social Security Disability Benefits.
You can calculate your benefit increase by multiplying your current benefit amount by .016. Then add the number you get to your current benefit.
The average benefit was 1,470/ month in 2019. Heres an example of how to calculate the 1.6% COLA increase.Example:$1,470 x .016 = $23.52 $1,470 + $23.52 = $1493.72
Read Also: Sc Snap Benefits Income Limits
Aero Recalculation Of Benefits
The second way to raise your PIA is by recalculating your benefits so you receive credit for previously un-credited earnings. This process automatically happens twice each year and is called an Automatic Earnings Reappraisal Operation recalculation. Heres how it works: When you start getting disability benefits, the SSA calculates your payment amount using the previous years earnings. This is typically based on your tax information or other documents submitted with your initial application to verify your earnings. Every year you qualify for SSDI benefits, the SSA compares how much money you earned the year before your disability began as well as the prior years earnings. These numbers are automatically reviewed to determine if any prior years earnings make you eligible for increased monthly Social Security disability payments.
These AERO recalculations happen automatically every March and October. If you qualify for higher Social Security disability payments from an AERO recalculation, youll get a notification by mail about a month later. Your next Social Security disability payment should reflect this increase as well as any retroactive benefits youre owed.
What Will Disability Benefit Amounts Be In 2022
In 2021, the average social security disability recipient received $1,277 in monthly benefits. Typical benefit amounts ranged from $800 to $1,700 in benefits. The maximum SSDI monthly benefit for 2021 was $3,148.
If a number like the potential 5.3% increase holds, that will affect the benefit amounts. Given that number, the 2022 social security disability benefit amount would be $1,345. The maximum SSDI benefit amount for 2022 would land at $3,315 in this scenario.
Again, nothing will be entirely decided until October. But, given that the potential percentage has gone up in the last month, it is extremely likely that there will be a significant benefit increase for disability in 2022.
Read Also: How To Calculate Disability Retirement Pay
How Much Is The Cola For This Year
The COLA this year is 1.3% for all Social Security and Supplemental Security Income benefits. The maximum federal SSI payment is increasing $11 per month for an individual and $16 per month for a couple .
Exact increases for Social Security disability benefits amounts depend on the lifetime earnings of the recipients, but the average increase for an SSDI recipient is $16 per month in 2021.
Social Security Increase Numbers Broken Down By Benefit Type
The latest COLA change isnt as big as the one we saw last year . But with no Social Security increase in 2015 or 2016, we believe any raise is worth celebrating! Heres how the numbers break down, starting in January 2020:
- Supplemental Security Income The maximum SSI payment for individuals goes up $12/month for couples, it increases $18/month. If you currently get $771/month in SSI benefits, your payments will go up to $783/month starting in January 2020.
- Social Security Disability Insurance The highest monthly SSDI payment in 2019 was $2,861. Starting in January 2020, that amount goes up another $150/month, raising the maximum SSDI payment available to $3,011. However, most current SSDI beneficiaries wont see that much extra money in next years checks. According to the SSAs COLA fact sheet, the average SSDI beneficiary today receives $1,238/month. Starting in January 2020, the federal government adds another $20/month, bringing the average monthly SSDI benefit up to $1,258.
- Social Security retirement In 2019, the average retiree receives $1,479/month in Social Security benefits. On January 1, 2020, that average retirement benefit rises to $1,503/month. While this puts just $288 more into each retirees pocket, at least its something. Much like SSDI, the max Social Security retirement payment available each month jumps from $2,861 to $3,011.
Recommended Reading: How Much Is Disability Pay In California
The Purpose Of A Cola
The purpose of a COLA is to make sure that inflation doesn’t lead to your benefits being insufficient to purchase the things you need to live. For example, if one year the cost of goods and services were to cost twice as much on average as the year before, you would only be able to buy half as many goods and services with the same amount of money.
Social Security Checks Going Up By 59 Percent The Highest Increase In Decades
WASHINGTON The Social Security Administration announced Wednesday that recipients will receive a nearly 6 percent increase in benefits next year.
The boost in benefits, which will affect nearly 70 million people, is being fueled by a spike in inflation caused by supply chain bottlenecks, worker shortages and other economic disruptions from the Covid pandemic.
The larger checks will begin to arrive for most recipients in January.
At the end of December, about 8 million recipients of Social Securitys Supplemental Security Income program, which is for people who are disabled or receive little income, will start to receive increased payments.
Rising inflation contributed to the Social Security Administration determining that the cost-of-living adjustment, or COLA, will be 5.9 percent for 2022. Data released Wednesday by the Bureau of Labor Statistics showed that prices rose by 5.4 percent on an annualized basis in September and the inflation rate rose a seasonally adjusted 0.4 percent in September from August.
Some other adjustments that take effect in January of each year are based on the increase in average wages. Based on that increase, the maximum amount of earnings subject to the Social Security tax will increase to $147,000 from $142,800, the Social Security Administration announced Wednesday.
The government said that beneficiaries will receive a notice in December about their increased payments.
You May Like: Is Being Partially Blind A Disability
Earnings Limits For Recipients Were Increased
If you work while collecting Social Security benefits, then all or part of your benefits may be temporarily withheld, depending on how much you earn. However, those income limits have increased slightly for 2021.
Prior to reaching full retirement age, you will be able to earn up to $18,960 in 2021. After that, $1 will be deducted from your payment for every $2 that exceeds the limit. The 2021 annual limit represents a $720 increase over the 2020 limit of $18,240.
If you reach full retirement age in 2021, then you will be able to earn $50,520, up $1,920 from the 2020 annual limit of $48,600. For every $3 you earn over the 2021 limit, your Social Security benefits will be reduced by $1, but that will only apply to money earned in the months prior to hitting full retirement age. Once you reach full retirement age, no benefits will be withheld if you continue working.
Cola Increases May Not Be Enough
But even with these provisions, some argue that COLA increases wont be sufficient to maintain seniors purchasing power, primarily due to rising health care costs, in addition to inflation-driven price increases.
First, there are Medicare costs to consider. For Social Security recipients who pay Part B premiums, the Social Security Administration works with the Center for Medicare and Medicaid Services to ensure COLA increases are not dwindled by annual increases in Medicare Part B payments.
Medicares hold harmless provision ensures Social Security benefit payments are not reduced below their current dollar value due to increases to the Medicare Part B premium. This effectively caps these premiums at the amount of each COLA for those who qualify.
When you keep your benefit dollar value the same, you wind up with less each year. Due to inflation, youll have less purchasing power next year than you do this year.
Whats more, the CPI-W, which tracks urban workers spending habits and is the measure of inflation upon which COLA increases are based, may not accurately reflect how many retirees spend their money, some argue.
Thats why Rep. John Garamendi, D-Calif., recently introduced the Fair COLA for Seniors Act of 2021, which advocates for Social Security benefit COLAs based on the Consumer Price Index for the Elderly, instead of the CPI-W.
Read Also: Calculate Retirement Pay With Crdp
Social Security Changes In 2020 That Could Affect Your Take
Although Social Security currently sends benefit checks to more than 63 million people each month, the program is first and foremost designed to provide a financial foundation for our nation’s retired workers. Nearly 45 million retired workers receive a benefit check monthly, with better than 3 out of 5 of these seniors counting on their payout to account for at least half of their income.
Given the relative importance of Social Security, it should come as little surprise that the second week of October holds special significance to these tens of millions of Americans. That’s because the second week of October is when the Social Security Administration announces changes to the program for the upcoming year that could directly impact what beneficiaries are paid on a monthly basis. Of course, these changes can impact nonretirees who aren’t receiving a Social Security benefit as well.
Here are five Social Security changes for 2020 that could impact your monthly take-home income.
Can I Get Unemployment Benefits While Waiting For Ssdi Benefits
The issue with unemployment versus SSDI benefits is the difference in why someone receives these benefits.
When you receive SSDI, it means you are unable to do your past work or any other work.
However, unemployment benefits generally indicate you are ready, willing and able to work, but havent found employment yet.
Some administrative law judges look at your individual circumstances when determining the significance of your application for unemployment benefits and related efforts to obtain employment when determining if you qualify for SSDI.
You may put your SSDI application in danger if you have recently received unemployment benefits while at the same time applied for SSDI.
That is because your unemployment benefits mean you are saying you are willing and able to work.
Also Check: Is Adhd Considered An Intellectual Disability
Get Help With A North Carolina Ssd Claim
Changes to Social Securitys large and complex disability programs can have a significant impact on payments you receive or your ability to obtain benefits you or a loved one deserves. The experienced Social Security disability attorneys at Younce, Vtipil, Baznik & Banks are here to help. Based in Raleigh, our SSD attorneys can help you file a disability claim or appeal a claim that has been denied. Contact us today for honest advice and the effort to help you get the compensation you deserve.
The Social Security Administration Has Announced A 16% Increase In Ssdi And Ssi Benefits For 2020
By Bethany K. Laurence, Attorney
The Social Security Administration has announced a 1.6% increase in Social Security and Supplemental Security Income benefits for 2020, a significantly smaller cost-of-living increase than the year before. Increased payments to Social Security recipients begin January 1, 2020, while increased payments to SSI recipients begin on December 27, 2019. Other numbers regarding eligibility for disability and average benefits have also changed for 2020.
The Wealthy Should Be Prepared To Open Their Wallets
Lastly, Social Security’s changes for 2020 won’t just affect those receiving a benefit from the program. Wealthy workers can also expect to open up their wallets and pay more into the program as long as inflation rises on a year-over-year basis, as measured by the CPI-W.
Although Social Security has three sources of funding, the payroll tax on earned income provides the bulk of the program’s income . This 12.4% payroll tax is affixed on earned income between $0.01 and $132,900 in 2019, with this upper limit known as the payroll tax earnings cap. It adjusts annually in step with the National Average Wage Index, with the one exception being in years where deflation occurs . However, this has only happened three times since 1975 .
With COLA likely being positive in 2020, this should mean an increase in the payroll tax cap for next year. Since most workers don’t make $132,900 or more a year, this won’t have an impact on a majority of the labor force. However, for more well-to-do workers who are earning above $132,900, you can almost certainly expect to pay a bit more into the program in 2020, with the cap rising to perhaps $135,000 to $136,000, based purely on a guess from Yours Truly.
Suffice it to say, changes in Social Security in 2020 could mean variability to your take-home pay next year.
More From The Motley Fool
Biden Cancelled $15 Billion Of Student Debt For Borrowers But You Can Still Apply Now
Each year the Social Security Administration bases in cost of living increase on the Department of Labors consumer price index for urban wage earners and clerical workers. The CPI is meant to be used as a measure of inflation. While the 1.6% COLA increase to Social Security benefits is tiny, every penny counts for those just scraping by in retirement.
Retirees will continue to feel pressure on their wallets, even with this cost of living increase. Social Security benefits typically do not keep up with the common expenses people face as they age. We are talking about expenses like housing, food, transportation, and of course, health care and the astronomical amount of money people pay for prescription drugs.
Across the board, Americans have been hit with higher out of pocket costs for health care. However, these increases disproportionately affect seniors, especially those on fixed incomes. According to the Labor Department, the cost of medical services has increased by 4.4% in September compared to the previous year.
senior athletes synchronous exercising on step platforms at gym. Staying active can help reduce … medical costs and improve your overall quality of life in retirement.
More Social Security Taxes Coming in 2020
Recommended Reading: What Disability Did Forrest Gump Have
Medicare Part D Costs Also Going Up In 2020
Now, heres some not-great news: Your Medicare Part D out-of-pocket costs will go up in 2020. We say this because anyone eligible for the 1.6% Social Security increase likely has Medicare coverage, too. Once you receive SSDI benefits for 24 months, you automatically qualify for Medicare. All Americans must sign up for Medicare at 65 or pay a penalty. Since Part D covers prescription drugs and we know the cost outlays, lets take a look.
The ACA includes a provision limiting how much Medicare Part D costs grew from 2014 to 2019. However, that provision expires on January 1, 2020. Here are the new Medicare Part D plan costs and other changes that go into effect next year:
- Annual deductible increases from $415 to $435.
- Out-of-pocket spending threshold for catastrophic coverage increases from $5,100/year to $6,350 annually.
- Enrollees who take name brand-only medications can expect to pay $400 more in 2020 .
- Initial coverage limit goes up from $3,820/year to $4,020 starting in January.
More Ssdi Earnings Allowed In 2021
Because Social Security wants the disabled to work if they are able, a certain amount of income earned through substantial gainful activity, or SGA, is allowed before the SSA decides your earnings indicate you are not disabled.
Social Security sets caps for SGA earnings at which eligibility for Social Security Disability Insurance benefits may cease. For 2021, the SGA maximums are $1,310 per month for non-blind workers , up from $1,260 per month and $2,190 per month if you are legally blind , up from $2,110 per month.
Applicants for SSDI may test their ability to maintain some gainful activity in a Trial Work Period for at least 9 months, which dont have to be consecutive, and for as long as 5 years on a rolling basis . The SSA determines whether a month counts as a TWP month according to gross earnings for the month.
For 2021, you can earn more in a Trial Work Period before it counts against the time you can spend in the TWP program. This year, any month you earn $940 or more will count toward your TWP eligibility. The monthly maximum was $910 in 2020. For the self-employed, net earnings of $940 or more in a month or working in your business for 80 or more hours in a month counts toward your TWP.
Recommended Reading: Is Adhd Retardation