Though Social Security has been around for years, the program can change from time to time. And in 2022, there are some big changes to prepare for. Here's what you need to know, whether you're gearing up to collect benefits soon or well into the future.
1. Benefits are getting a major boost
The upcoming cost-of-living adjustment, or COLA, for Social Security will be seniors' largest raise in decades. Benefits are increasing 5.9%, and while some of that raise will inevitably be offset by Medicare Part B premium hikes, seniors should still come away with a lot more money than they're used to.
That said, the whole reason benefits are getting such a boost in 2022 is that the cost of living has risen drastically this year. While retirees can look forward to larger paychecks, they'll also have to grapple with higher food costs and other increasing expenses.
2. Workers will lose more of their money to Social Security taxes
Each year, there's a wage cap that dictates how much earnings workers pay taxes on. In 2022, the wage cap is rising from $142,800 to $147,000. Lower earners won't be impacted by this change, but if you earn more than $142,800, expect a higher tax bill.
3. Higher earnings will be needed to earn work credits
To be eligible for Social Security in retirement, you need to earn 40 work credits in your lifetime. Work credits are based on earnings, and you can earn a maximum of four per year.
In 2022, the value of a work credit will rise from $1,470 to $1,510. That means it will take $6,040 in earnings to earn four work credits next year. This isn't something that will impact full-time workers, but it could have an impact on those who work on a part-time basis.
4. The earnings-test limits have gone up
The Social Security Administration allows seniors to work and collect benefits at the same time. Those who do so after reaching full retirement age (FRA) don't have to worry about how much they earn. But if you haven't reached FRA and intend to hold down a job while collecting Social Security, you'll need to be mindful of the earning-test limits.
Next year, you can earn up to $19,560 without having your benefits impacted. But once your earnings exceed that limit, you'll have $1 in Social Security withheld per $2 of earnings. If you'll be reaching FRA in 2022, you can earn up to $51,960 without losing any benefits. Beyond that, you'll have $1 in Social Security withheld per $3 of earnings.
Benefits that are withheld due to exceeding the earnings-test limits aren't lost forever. You get them added back into your monthly payments once you reach FRA. But remember, for each month you claim benefits ahead of FRA, those payments are permanently reduced. If you think you'll earn enough to have benefits withheld, you may want to hold off on filing for Social Security altogether.
Keep tabs on Social Security
Even if you're not planning to sign up for Social Security for quite some time, changes to the program could have an impact on your finances, such as a higher wage cap or work credit value. It pays to continuously read up on Social Security so you're not caught off guard as the program evolves.