Many seniors look to Social Security as an essential, stable source of monthly income. But while Social Security has been around for many decades, the program tends to undergo changes on a yearly basis -- some of which may not be so obvious. Here are a few ways Social Security has evolved since the start of 2022.
1. Benefits went up substantially
That's why Social Security benefits are subject to an annual cost-of-living adjustment, or COLA, the purpose of which is to help ensure that they keep up with inflation. Because inflation soared during the latter part of 2021, Social Security benefits got a 5.9% COLA at the start of 2022 -- the most generous one in decades.
Next year's Social Security COLA won't be announced until October, because it will be calculated based on third-quarter inflation. But since inflation has been rampant this year, seniors are no doubt anticipating an even larger raise for 2023.
2. Seniors lost buying power despite a generous raise
Social Security recipients may have seen their benefits go up 5.9% this year. But the rate of inflation has well outpaced that raise, leaving seniors to lose buying power.
In June, the Consumer Price Index, which measures changes in the cost of goods, rose 9.1% on an annual basis. When we compare that increase to the raise seniors got at the start of the year, that 5.9% boost looks far from impressive.
3. Workers got charged more taxes for Social Security purposes
Social Security gets the bulk of its funding from payroll taxes. But higher earners don't necessarily pay Social Security taxes on all of their earnings.
Each year, there's a wage cap established for Social Security tax purposes. In 2021, it was $142,800, but in 2022, it rose to $147,000. That means higher earners are paying Social Security tax on an additional $4,200 of income this year. And chances are, they'll face an even higher Social Security tax burden next year.
That's not automatically a terrible thing. The reality is that Social Security needs as much payroll tax revenue as it can get to stay afloat. Some lawmakers have even proposed lifting the wage cap altogether so that workers pay Social Security tax on their entire earnings.
While that change is just a proposal and by no means imminent, it puts a modest wage cap increase in a much better light. After all, paying Social Security tax on another $4,000 or $5,000 of earnings is better than paying it on another $100,000 or more.
Keep tabs on Social Security changes
Whether you're currently collecting benefits or have many years in the workforce ahead of you, it's important to stay apprised of Social Security changes. Being informed could help you not only claim benefits strategically, but better plan for your own retirement.