Many seniors rely on Social Security to get by in retirement. But even if you're not retired, changes to Social Security could impact you both in the near term and the long term. Here are three Social Security changes that took place recently -- and what they mean for you.
1. Benefits got a generous raise
In 2022, Social Security benefits were subject to a 5.9% cost-of-living adjustment, or COLA. That's significant, as it represents the program's most generous COLA in decades.
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But there's a reason behind that COLA -- inflation. Living costs rose substantially during the latter part of 2021, and that's what drove 2022's big raise. This year, living costs are up even more, which means seniors could see an even more substantial COLA for 2023. In fact, some reports are even calling for a COLA that's close to 11% for 2023.
We won't know what next-year's COLA will look like until October, since that number is based on third-quarter inflation data. And it may be that the 11% estimate is way off. But since inflation levels have been higher so far this year than last, it is fair to say that next-year's COLA will surpass the 5.9% boost seniors got at the start of 2022.
2. The wage cap increased
Social Security gets most of its revenue from payroll taxes. But workers don't pay taxes on all of their income -- just a portion.
Each year, a wage cap is put into place that dictates the amount of earnings subject to taxes. Last year, that cap was $142,800. This year, it's $147,000. And we can expect that cap to increase for 2023, as well, to account for wage growth.
Before you regard that as a bad thing, consider that Social Security needs its payroll-tax revenue to keep paying benefits. While most of us would rather pay less tax than more, by getting taxed on our earnings, we're all doing our part to help ensure that the program will be around for us in retirement.
3. The program's trust-fund depletion date was pushed back
In the coming years, Social Security expects its payroll-tax revenue to dry up substantially as baby boomers exit the workforce in droves. That may result in benefit cuts once the program's trust funds run dry.
Last year, the Social Security Trustees reported that those trust funds were likely to become depleted by 2034. This year, that depletion date was pushed back to 2035. That's good news, as it potentially buys seniors an extra year without benefit cuts.
How's your Social Security knowledge?
It's important to stay apprised of Social Security changes whether you're receiving benefits or not. A higher wage cap, for example, will impact your near-term taxes, while updates on the program's trust funds might impact your benefits in the future.
This isn't to say that you have to seek out Social Security news daily. But it does pay to look out for updates once in a while so you don't miss out on anything important.
