Here are 3 Financial Updates in the New Year:
1. Social Security Checks Get a Boost.
If you’re a retiree on social security, you can look forward to a 5.9% boost in benefits in 2022. This is the largest cost-of-living adjustment in 39 years.
The COLA adds approximately $92 a month for the average retired worker.
This is the first significant change many retirees have seen in the past 15 years. With inflation affecting the cost of things like groceries, this adjustment should be of help to many retirees. Social Security accounts for nearly all the income for 25% of seniors; 50% live in households where Social Security provides at least half of their income.¹
2. Increased Limits for 401(k) Plans.
The IRS will increase the employee contribution limit for 401(k) plans to $20,500 in 2022, up $1,000 from $19,500. The new amount also applies to 403(b), most 457, and Thrift Savings Plans. Catch-up contributions for individuals 50 and older remain at $6,500.
Tax Tip: Contributing to a 401(k)/403(b) is still the easiest, most effective way to lower taxable income.
This boost does not apply to Individual IRAs and Roths. The contribution limits of these accounts remain $6,000 for individuals under the age of 50 and $7,000 for those over aged 50+.²
3. Interest Rates are Likely to Go Up in 2022
The "Transitory Inflation" they told us to expect in the post-COVID economy is taking its time transitioning as inflation has peaked near 6.8%. The Federal Reserve shifted its stance from "let's wait and see" to "is there anything we can do" to slow down inflation. Right now, the easiest combatant appears to be raising interest rates. They told us that interest rates would remain unchanged until 2023 at the beginning of 2021 but that narrative has changed as inflation outpaced initial expectations. This means it will get more expensive to borrow money. Now would be a good time to refinance your home or borrow money at a fixed rate for things like cars and other major purchases. Otherwise, you may pay more to the bank come next year. While paying more to borrow money is not ideal, raising interest rates is one of the best ways to stifle inflation; meaning that we may have to pay 1-2% more in interest to avoid paying 8% more for things the following year.
As of writing this blog, the Feds' policymaking committee left its benchmark rate near 0 but now projects three rate hikes in 2022 up from its September forecast.3 We advise you to remember that nothing is set in stone, and plans can always change.
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