Social Security Cost of Living Adjustment & Wage Base for 2021

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It has recently been announced that Social Security benefits for millions of Americans will increase by 5.9% beginning January 2022. This is the largest cost of living adjustment in 40 years! The increase is calculated based on data from the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, from October 1st, 2020 through September 30th, 2021. Inflation has been a point of concern and received a great deal of media attention this year, so this increase comes as welcome news for Social Security recipients who have received minimal or no benefit increase in recent years.

The Social Security taxable wage base will also increase in 2022 from $142,800 to $147,000. This means that employees will pay 6.2% of Social Security tax on the first $147,000 earned, which translates to $9,114 of Social Security tax. Employers match the employee amount with an equal contribution. The Medicare tax remains at 1.45% on all income, with an additional .9% surtax for individuals earning over $200,000 and married couples filing jointly who earn over $250,000.

For many, Social Security is one of the only forms of guaranteed fixed income that will rise over the course of retirement. However, the Senior Citizens League estimates that Social Security benefits have lost approximately 33% of their buying power since the year 2000. This is why, when working to run retirement spending and safety projections, we factor an erosion of Social Security’s purchasing power into our clients’ financial plans.

Kali Hassinger, CFP®, CDFA®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She has more than a decade of financial planning and insurance industry experience.