- Social Security's cost-of-living adjustment for 2022 will be 5.9%, the highest in decades.
- Yet high inflation and more expensive Medicare Part B premiums will limit just how much more beneficiaries could see in their monthly checks.
- You can take steps now to protect your income by being strategic about your Medicare coverage and planning ahead for how higher benefits could affect your taxes.
Despite the biggest cost-of-living adjustment in decades, Social Security beneficiaries may still find it challenging to make their monthly checks stretch farther next year.
The reasons: Inflation is continuing to drive up consumer prices, while standard Medicare Part B premiums will rise by 14.5% in 2022 in a bigger-than-expected jump.
The Consumer Price Index, a government measure for the change in prices over time, climbed 6.2% year-over-year in October, marking the biggest inflation increase in 30 years.
Standard Medicare Part B premiums will be higher next year as well, due in part to a new, expensive Alzheimer's drug.
That could affect how much people from Social Security's 5.9% cost-of-living adjustment for next year.
"Inflation is still running ahead of the COLA amount right now," said Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League, a nonpartisan senior group.
"If inflation moderates, buying power may improve," she said.
Those with the lowest monthly Social Security benefits — around $366 per month — will see no increase at all next year, based on The Senior Citizens League's calculations. Higher benefits — around $2,870 per month — will see about a 5.1% increase.
To plan for those changes next year — and to make the most of the cost-of-living adjustment — there are some things you should do now.
Calculate your benefit for 2022
The Social Security Administration will provide statements with your official monthly benefits for next year.
While you are waiting for that, you can calculate how much you can expect to receive on your own. Take your monthly benefit from this year and multiply it by 1.059 in order to determine how much of an increase you will see from next year's cost-of-living adjustment. Then, subtract your estimated Medicare Part B premium based on your income tier.
Keep in mind that people with incomes above certain levels will pay more for Medicare Part B due to what's known as Income-Related Monthly Adjustment Amounts, or IRMAAs.
The Social Security Administration generally starts sending mailed notices of the new benefit amounts in early December. However, most beneficiaries will be able to see that information through their online My Social Security accounts.
Shop around during Medicare open enrollment
You may still have time to find a better rate for your health coverage through Medicare open enrollment, which lasts until Dec. 7.
You may opt for a Medicare Advantage plan, which provide Medicare benefits through a private insurer.
By selecting a Medicare Advantage plan, you may be able to find broader coverage for as much or less than what Part B premium will cost you, said Sri Reddy, senior vice president of retirement and income solutions at Principal Financial Group.
"You would be doing yourself an injustice if you didn't shop around and make sure you have the best coverage and the best price," Reddy said.
The variety of Medicare Advantage plans available will vary depending on where you live, according to Johnson.
You may still be able to "save considerably" just by changing your Medicare Part D coverage for prescription drugs, Johnson said.
From year to year, the private insurers that run those plans may drop coverage for certain prescriptions completely, or they can change their coverage tiers, which could mean you will pay much more for the same drugs.
"There's any number of pitfalls that can happen," Johnson said.
The key is to read the fine print before signing up.
"If you catch some issue or problem, it can save you hundreds and even thousands of dollars by making a move to a more efficient plan, either your health plan or your drug plan," Johnson said.
Plan ahead to mitigate your tax bill
A 5.9% cost-of-living adjustment in 2022 will push up the gross amount of your benefits and your income. The result: More of your Social Security benefits could be subject to taxes.
This would affect you in the 2022 tax year, and come due in the 2023 tax season, Johnson said, which means there's time to plan ahead.
By consulting a tax advisor, you can work to identify the best strategy for you. That could include having more money withheld for taxes from either your Social Security benefits or your retirement account distributions or making other adjustments.
Local senior centers may have tax professionals available to help for reduced costs, Johnson said. In addition, your local Agency on Aging may have Medicare counselling services available.