The bad news is that inflation is up – way up – year over year. The good news is that yesterday SSA announced a 5.9% Cost of Living Adjustment (COLA) for 2022. This is the largest increase since the 7.4% COLA in 1982 and, more recently, the 5.8% adjustment in 2009.
The Social Security Act provides a formula for determining each COLA, based on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The just-announced 5.9% COLA was determined by the percentage increase in the average CPI-W for the third quarter of 2021 over the average for the third quarter of 2020.
The increase is applied to all Primary Insurance Amounts, and thus all Social Security benefits, beginning with the December 2021 benefit, which shows up in the recipient’s bank account in January 2022. The COLA also applies to Supplemental Security Income (SSI) benefits for January 2022.
The contribution and benefit base (aka the “wage base”), which is the maximum amount of earnings that is subject to Social Security taxes in a given year, has also increased: from $142,700 in 2021 to $147,000 in 2022. The wage base is tied to changes in the National Average Wage Index rather than to the COLA. This is another bad news/good news situation for high wage earners: yes, $4,300 more in earnings will be subject to OASDI taxes, but potential benefits will also be higher.
Here is a link to the 2022 Social Security Fact Sheet, which shows year over year increases in a variety of automatic adjustments. Medicare premium adjustments have not yet been announced, but that information should be available in the coming weeks.