Social Security has been around since 1935. And when the Social Security Act was signed into law by President Roosevelt, its purpose was to provide retired workers with ongoing income so they could cover their expenses and live out their senior years with dignity.
The purpose of Social Security hasn't changed. The point of the program is to provide seniors with income once they reach retirement age.
But the rules surrounding Social Security have evolved since 1935. Social Security looks different today than it did even in 2022. Here are a few recent changes to the program you may not be aware of -- but should be.
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1. The wage cap is higher this year
Social Security doesn't just fund itself. Rather, it gets most of its funding from payroll taxes.
Each year, there's a cap put into place for imposing Social Security taxes on wages. Last year, that cap sat at $147,000, so earnings beyond that point were not subject to Social Security taxes.
But you may have noticed that inflation surged in 2022, and wage growth was sizable, too. As a result, this-year's Social Security wage cape is $160,200 -- a $13,200 jump from 2022.
Of course, if you earn $147,000 or less, this change won't affect you in the slightest. But if you're a higher earner, you can expect to pay more money into Social Security in 2023.
2. It's getting harder to qualify for Social Security
Qualifying for Social Security benefits isn't just a matter of reaching a certain age. Rather, you need to work and pay into the system to be eligible for benefits down the line (though there are exceptions, as spousal benefits let you receive Social Security based on a spouse's work record, even if you never worked yourself).
To qualify for Social Security, you need to accumulate 40 work credits in your lifetime and can only rack up four credits, at most, per year. The value of a work credit can also change over time.
Last year, it took $1,510 in earnings to accrue a single work credit, but this year, you'll need $1,640 in earnings to achieve that same goal. This is something to be mindful of if you only work on a part-time basis.
3. You can earn more money without having benefits withheld
The Social Security Administration allows workers to earn money from a job and receive benefits at the same time. Once you've reached full retirement age (FRA), you can earn any amount without it impacting your benefits.
However, FRA doesn't arrive until age 66, 67, or somewhere in between, depending on your year of birth. And you're allowed to claim Social Security starting at age 62. So it's conceivable that you might work and collect benefits for several years before FRA arrives. In that case, you'll be subject to an earnings-test limit, and going beyond that limit could mean having some of your Social Security income withheld.
Last year, the earnings-test limit was $19,560. This year, it's $21,240. However, these limits refer only to workers who aren't close to FRA. If you'll be reaching FRA this year, the earnings-test limit that applies to you will be $56,520. It was $51,960 for those who were reaching FRA in 2022.
Keep tabs on Social Security
You might assume that Social Security isn't the sort of thing you need to read up on. After all, the program has been around for almost 90 years.
But actually, Social Security has the potential to undergo changes that could impact you substantially -- whether you're collecting benefits or not. So it's a good idea to keep reading up on the program in case any changes impact you for better or for worse.
