Social Security has been around for a long time. In spite of that, the program is constantly undergoing changes, some of which may not hit your radar. But it's important to understand how the program is evolving, whether you're almost ready to retire and claim benefits or you're years away from reaching that point. With that in mind, here are three changes to Social Security you may not be aware of -- but should be.
1. The average monthly benefit is increasing
For years, seniors on Social Security have endured stingy cost-of-living adjustments, or COLAs, leaving them with very little in the way of boosted income from one year to the next. But next year, the average monthly benefit is rising substantially from $1,565 to $1,657.
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The reason? Inflation has been rampant in recent months, and during the year's third quarter, the Consumer Price Index rose substantially. That data is used to calculate Social Security COLAs, and for 2022, that boost will amount to 5.9%.
But while the average monthly benefit may be rising in 2022, so too have living costs. And so all told, seniors on Social Security may not actually end up gaining much buying power, especially since Medicare Part B premiums are also climbing.
2. Social Security taxes on earnings are rising
Higher earners don't necessarily pay Social Security taxes on all of their earnings. Each year, a wage cap is set that determines how much income workers pay taxes on.
This year, workers pay Social Security taxes on their first $142,800 of earnings. From there, earnings aren't subject to that tax.
In 2022, the wage cap is rising to $147,000. That means workers whose income is at or above $147,000 will be liable for an additional $520.80 in Social Security taxes.
Those who are salaried workers will get to split that extra tax with their employers evenly. But the self-employed will have to pay it in full.
3. Work credits are getting harder to earn
Social Security benefits aren't given out automatically. To qualify for them, you need to earn 40 work credits in your lifetime.
The value of a single work credit changes from year to year. Right now, one credit is worth $1,470 of earnings. But in 2022, you'll need to earn $1,510 to get that same work credit.
Since you can't earn more than four work credits per year, if you work full-time, the changing value of a work credit probably won't matter to you. But if you work part-time, you should pay attention to this shift and make sure your income will help you stay on track when it comes to qualifying for benefits down the line.
Don't be in the dark
Social Security changes won't always make the front page of the paper or your go-to news site, so sometimes, keeping up with them means having to do a little digging. But if you make an effort to stay apprised of those changes, you'll put yourself in a better position to manage your income and make the most of your benefits once it's time to collect them.
