Money Matters

Inflation and Retirement Planning

29 Dec 2021 by: Matt Showley  , ,

Recent data shows that inflation is now at its highest level in 39 years, with the 12-month inflation reading now at 6.8% as of November 2021. These price increases are a result of a shortage of available workers as well as an imbalance between the supply of goods (the things we buy) and the tremendous demand from consumers who are buying more of a wide range of products amid the pandemic. Consumers haven’t spent as much on travel, clothing, driving to work, and other expenses that were generally higher pre-pandemic, so they are spending more on other things that are now in short supply. Combined, this creates inflation.

Inflation has positive and negative outcomes. Yes, things cost more and your current dollars don’t stretch quite as far. However, we want to share a few things that are made better by inflation, particularly those things that can help you on your path to retirement. For example, rising inflation has led to adjustments to federal tax brackets, higher Social Security benefits, and more generous retirement plan contribution levels. Below are the new levels you should be aware of as we enter 2022. Remember to update your withholdings amounts as we head into the new year!

Traditional IRA and Roth IRA Contributions: $6,000, plus $1,000 catchup for those over age 50 (no change from 2021)

401(k), Roth 401(k), or 403(b) Contributions: $20,500, plus $6,500 catchup for those over age 50 (increase of $1,000 from 2021)

Defined Contribution Plan Maximum for Profit Sharing and Self-Employed: $61,000 (increase of $3,000 from 2021)

SIMPLE IRA: $14,000, plus $3,000 catchup for those over age 50 (increase of $500 from 2021)

Social Security Income: 5.9% increase from 2021

Social Security Tax: Applied to wages up to $147,000 (increase of $4,200 from 2021)

HSA Contribution Limits: Individual: $3,650 (increase of $50 from 2021)

Family: $7,300 (increase of $100 from 2021)

New Standard Deduction:

Single: $12,950 (increase of $400)
Married Filing Jointly: $25,900 (increase of $800 from 2021)

Estate Tax Exemption: $12,060,000 per person (increase of $360,000 from 2021)

Annual Exclusion Gift Limit: $16,000 (increase of $1,000 from 2021)

While inflation is not always welcome news, depending on your financial situation there are some benefits to these higher rates, particular for those with a savers mindset — which is key to remaining on track for financial independence.

If you would like to discuss how these higher levels can help you save for your retirement and how you can navigate the impact of higher inflation for your own financial situation, please contact us.

CCMI provides personalized fee-only financial planning and investment management services to business owners, professionals, individuals and families in San Diego and throughout the country. CCMI has a team of CERTIFIED FINANCIAL PLANNERTM professionals who act as fiduciaries, which means our clients’ interests always come first.
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Matt Showley is a CERTIFIED FINANCIAL PLANNER™ professional and Accredited Estate Planner®️ who advises individuals, families, and business owners on portfolio management, financial planning, tax and estate planning, real estate, cash-flow modeling, and education planning. In addition to his role as principal and owner, Matt continues to oversee the firm’s operations and work with new and existing clients. Matt joined CCMI in 2006 and has contributed significantly to the firm’s wealth management and financial planning processes and client relationships.

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