Please ensure Javascript is enabled for purposes of website accessibility

3 Ways Social Security Can Change Over Time

By Maurie Backman - Mar 29, 2021 at 7:18AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Whether you're collecting benefits or are still in the midst of your career, here are a few important points about Social Security to keep in mind.

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.

Loose stack of Social Security cards

Image source: Getty Images.

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/21/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.