Though Social Security has been around for years, there are certain things about it that aren't set in stone. Whether you're collecting benefits already or anticipate signing up in the future, here are a few points to keep on your radar.
1. Benefits can increase via cost-of-living adjustments
The monthly benefit you start out collecting -- the one that's based on your personal wage history and filing age -- isn't the same monthly benefit you'll receive for life. That's because Social Security beneficiaries are entitled to cost-of-living adjustments, or COLAs, that can boost benefits year after year.
Of course, COLAs aren't always generous. This year, seniors got a 1.3% raise, and in previous years, they've gotten nothing. COLAs hinge on how the cost of consumer goods fluctuates, so some years' raises are stingier than others. But still, for the most part, seniors do get a little boost year after year.
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2. The wage cap can climb
Workers don't pay Social Security taxes on all of their income. Rather, there's a wage cap that's set each year that determines how much taxes workers are on the hook for. In 2020, the wage cap for Social Security taxes was $137,700. This year, it's $142,800. And in 2022, it could easily rise again.
A shifting wage cap could impact your tax bill if you earn enough money. Furthermore, President Biden is considering reinstating Social Security taxes on wages above the $400,000 mark, so that's something to keep in mind as well. To be clear, workers earning over $400,000 wouldn't pay Social Security taxes on all of their income. Rather, earnings between the current wage cap and $400,000 would be exempt.
3. The earnings test limits can rise
Seniors who collect Social Security are allowed to hold down a job at the same time. But those who file for benefits before reaching full retirement age can only earn so much money before they risk having a portion of their benefits withheld.
The earnings test limit is something that changes for seniors year after year. In 2021, workers who collect Social Security and work can earn up to $18,960 without impacting their benefits. From there, $1 in Social Security income is withheld for every $2 of earnings. Those reaching full retirement age in 2021 get a higher limit -- $50,520 -- but from there, $1 in Social Security income is withheld per $3 of earnings.
Like the wage cap, the earnings test limit changes from year to year, so it's something for seniors to be mindful of if they're receiving benefits before full retirement age. (Once full retirement age kicks in, beneficiaries can earn as much money as they'd like and still collect their Social Security payments in full.)
Despite the fact that Social Security has been around for a long time, there are aspects of the program that evolve through the years. Knowing what those are can help you better manage your money during your working years and also help you manage your finances during retirement. It pays to keep reading up on Social Security changes, because lawmakers also have the ability to alter the program -- ideally in a manner that better serves the public.
