(844) 845-4219
Image showing a pen over a check from the United States Treasury for Social Security income and the cost-of-living adjustment

Social Security Income and the New Cost of Living Adjustment » How to Save for Retirement Even If You’re in Debt » Social Security Income and the New Cost of Living Adjustment



Social Security is a program run by the federal government. It provides income for retirees, the disabled, and families with a deceased spouse or parent. Over 60 million Americans receive monthly benefit checks from Social Security – the majority being retired individuals. While the key focus of the Social Security program today is to provide monthly benefit checks to retirees, it also offers vital support to those who may be unable to financially fend for themselves.

Know This:

  • The maximum amount of Social Security tax an employee can have withheld from their earnings in 2022 will be $9,114
  • Currently, the maximum monthly Social Security payment for retired workers is $3,345.
  • For full benefits, you need to accumulate 40 quarts or credits from covered wages. You can earn up to four credits per year.

What is Social Security and how does it work?

In 1935, Franklin D. Roosevelt championed the original Social Security Act into law. Today, that law still exists but after several amendments, it now encompasses several social insurance and welfare programs. But when most people think of Social Security they just think of retirement, which is not all that Social Security does. Social Security is a comprehensive federal benefits program that is designed to provide partial replacement of income to retirees and the disabled.

What is Social Security?

Social Security is a federal program run by the U.S. Social Security Administration. It is best known for retirement benefits, but it also provides survivor benefits and income for workers who become disabled. Social Security is also the term used to refer to the Old-Age, Survivors, and Disability Insurance (OASDI). Under specified conditions, Social Security also supports the children of beneficiaries.

How do Social Security benefits work?

Social Security works through a mandatory pooling contribution from workers. The contributions all go into one large pot, and they are then distributed out as benefits to eligible individuals. When the Internal Revenue Service (IRS) collects tax deposits, they entrust the deposits to the Social Security Trust Fund. This trust fund is actually made up of two separate funds – the Old-Age and Survivors Insurance (OASI) Trust Fund and the Disability Insurance Trust Fund. Basically, when you work, a portion of your earnings is taxed for Social Security purposes.

Each year, the federal government sets a limit on the amount of earnings subject to Social Security tax. In 2022, the tax limit is $147,000 compared to $142,800 in 2021. That means the maximum amount of Social Security tax an employee can have withheld from their earnings in 2022 will be $9,114.

  • If you are traditionally employed, both you and your employer each pay 6.2% of wages per pay period on up to the first $147,000 of wages earned that year.
  • When you’re self-employed, you act as both employee and employer, so your contribution ends up being 12.4% yearly.

How do you qualify for Social Security benefits?

You qualify for Social Security retirement or old age benefits through payment into the benefits program during your working years. For full insurance, you would have to accumulate 40 quarts or credits from covered wages. You can earn up to four credits per year. In 2022, one credit is awarded for every $1,510 in earnings. This amount is adjusted annually to help keep up with the rising costs of inflation.

Throughout your career, the Social Security Administration keeps track of your earnings. They also index each year’s total earnings and use the 35 highest-earning years of your career to determine your average indexed monthly earnings (AIME). From there, your AIME is used to get your primary insurance amount (PIA), which is the monthly amount you can collect when you have reached full retirement age.

You can start collecting your Social Security retirement benefits at 62 years of age. But if you retire at 62, your benefit amount would be reduced to compensate for receiving your benefits at an early retirement age. If you wait until you’re 70 years old instead, you’ll be able to collect an extra 8% a year. That means you end up collecting 132% of your primary insurance amount (PIA) for the rest of your life. But once you hit 70 years old, the increases stop.

Currently, the maximum monthly Social Security payment for retired workers is at $3,345.

Types of Social Security benefits

There are four different types of Social Security benefits:

  1. Retirement
  2. Disability
  3. Survivors
  4. Supplemental benefits

Let’s take a close look at each type of benefit.

Retirement benefits

Typically, people think of retirement benefits when they think of Social Security benefits. But that’s just one part of a larger pie that Social Security operates. Your retirement benefit amount will vary based on your pre-retirement salary and the retirement age you begin collecting benefits. These benefits are available to people 62 years and older who have worked for at least 10 years.

Disability benefits

Disability benefits are available to help support people who cannot work due to disabilities. Much like retirement benefits, you need to have worked a certain number of years to qualify for the Social Security Disability Insurance (SSDI) benefits. The number of years worked depends on your age, and your monthly benefit amount depends on your pre-disability salary.

Survivors benefits

Survivors benefits are useful because they allow survivors of workers and retirees to bridge financial gaps. Typically, eligible recipients include widows, widowers, divorced spouses, and children. The level of distributed benefits depends on the worker’s age at death, the worker’s salary, the survivors’ ages, and the survivors’ relation to the deceased.

Supplemental benefits

Supplemental security benefits (SSI) are used to help people who are unable to earn sufficient wages by themselves. The SSI is available to adults with disabilities, children with disabilities, and people 65 or older. Individuals who have enough work history may be eligible for SSI in addition to disability or retirement benefits. The amount of benefits people receive varies depending on their source of income and their place of residence.

How to open a “my Social Security” Account

My Social Security is an online service that allows you to review the history of your earnings, check your current or future Social Security benefits, and gives you access to many other Social Security services. To start, you will need to be at least 18 years of age, have a valid email address, a valid U.S. mailing address, and your Social Security number to create an account.

Follow these steps to open your My Social Security account:

  1. Go to the My Social Security sign-up page and then select “Create New Account.”
  2. Next, click on the button “Sign in with LOGIN.GOV.” This is a secure government portal that will let you use one set of credentials to access multiple participating federal agencies.
  3. Once you get to the next screen, click the “Create an Account” button again, which will be on the bottom of the page. From there, follow the prompts to enter your email, choose your language preference, and create a password.
  4. After you’ve read and accepted the terms of service, you’ll enter your personal information so the Social Security Administration (SSA) can identify you.
  5. Next, you’ll choose how they authenticate, or verify, that you are using the account. We recommend choosing a two-factor authentication, where you receive a security code by text or phone call to further protect your account.
  6. You can also add an extra layer of security by providing additional information to the SSA in the form of a state-issued ID, such as a W-2.

Social security retirement benefits planner

Planning is the key to a successful retirement. As you make your retirement plan, having a general idea of the approximate amount of Social Security benefits you will receive will help you reach your retirement goals more efficiently. If you’re trying to get an idea of what your benefits will look like when you retire, you can head over to the Social Security Administration’s website and use their online calculator. To use the online calculator, you’ll need to enter all your earnings from your online Social Security Statement.

What is a cost-of-living adjustment (COLA)?

A cost-of-living-adjustments (COLA) is an increase that is made to Social Security and the Supplemental Security Income (SSI) to counteract inflation. Cost-of-living adjustments are typically equal to the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers during a specific period of time. The Consumer Price Index (CPI) is used to measure inflation through the average prices of a basket of goods.

The Cost-of-living adjustment (COLA) for 2022 is 5.9%. That means if you received $10,000 in 2021, your 2022 annual benefit total would be $10,590. The COLA increase is also the largest in almost 40 years. It comes at the perfect time because inflation is at 7% and it is expected to continue its upward trajectory. So, some senior advocates say the increase is not enough.


Which states tax Social Security benefits?

There are currently twelve states that tax some or all their residents’ Social Security benefits:

  • Colorado
  • Connecticut
  • Kansas
  • Minnesota
  • Missouri
  • Montana
  • Nebraska
  • New Mexico
  • Rhode Island
  • Utah
  • Vermont
  • West Virginia

What percentage of Social Security benefits does a widow receive?

How much a widow receives in benefits depends on the average lifetime earnings of their spouse. The higher their earnings were, the higher the benefits. Then the surviving spouse receives a percentage of those earnings based on the age of their spouse when they died.

Here are examples of monthly benefit payments:

  • A widow or widower receives 100% of your benefit amount if you reach full retirement age or older.
  • A widow or widower receives 71.5% to 99% of your basic amount should you be between age 60 to full retirement age.
  • A disabled widow or widower is eligible for 71.5% of Social Security benefits once you are age 50 through 59.
  • And for a widow or widower of any age that is caring for a child under age 16, they are able to redeem 75% of Social Security benefits.

When does Social Security recalculate benefits?

The Social Security Administration recalculates retirement benefits on a yearly basis once they receive your income information from your tax documents. If you have a regular full-time or part-time job, your employers submit your W-2s to Social Security. And if you are self-employed, your earnings data is collected through your tax return.

What income reduces your Social Security benefits?

For the 2022 tax year, if you start benefits before full retirement age, you can only earn up to $19,560 and still get your full benefits. If you earn more than the limit, Social Security will deduct $1 from your benefits for every $2 you earn.

But if you wait until you reach full retirement age, Social Security becomes more forgiving. Should you earn more than $51,960 in 2022, Social Security will deduct $1 for every $3 you earn only during the months before you reach full retirement age. Once you have reached full retirement age, you can earn any amount of money without having your monthly benefits reduced.

What happens to unused Social Security benefits?

When you have Social Security benefits that have gone unused, they go into the Social Security trust funds. Those taxes are then used to pay people who are getting benefits right now. They unfortunately do not go to a personal account with your name on it. Money contributed to Social Security cannot be refunded either. And contributions cannot be returned if an eligible worker has passed away prior to collecting their benefits.


How Much Could You Save?

Just tell us how much you owe, in total, and we’ll estimate your new consolidated monthly payment.