If you're in your 20s or 30s, you may not pay much attention when you see Social Security headlines hit the news.
After all, why would you? You're nowhere close to being able to sign up for those benefits. And at this point, you may not even be confident that those benefits will be around for you in retirement. (Spoiler alert: They will be, but potentially at a reduced rate.)
But one thing you should know about Social Security is that the program's rules tend to change from one year to another. And next year, Social Security is undergoing a big change that could impact you even if you're nowhere close to being retired.
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Higher earners will need to pay up
Social Security's primary revenue source is payroll taxes. And each year, there's a wage cap put into place that determines how much income is taxed for Social Security purposes.
This year, the wage cap for Social Security sits at $160,200, so earnings beyond that point aren't taxed. What this also means is that someone earning $160,200 in 2023 is going to pay the same amount of Social Security tax as someone earning $1 million or more.
Next year, the wage cap for Social Security is rising to $168,600. So higher earners will be on the hook for taxes on an additional $8,400 of income.
If you're a salaried worker, you'll split that burden with your employer. It's only the self-employed who have to cover all of their Social Security taxes themselves.
Keep tabs on changes
You may be inclined to write off Social Security news as irrelevant to you if you're decades away from being able to collect benefits. But the reality is that you never know when a change to the program might have a direct impact on your finances.
And while you're at it, do yourself a favor and keep track of the progress that's being made (or lack thereof) to address Social Security's future funding shortfall. The reality is that the program is not in danger of disappearing completely, but benefit cuts are a distinct possibility. That's something you'll want to know about, as it's apt to affect your retirement planning.
Granted, if you're 25, you may not be doing much in the way of retirement planning. But it's never too soon to start planning for the future, and part of that is being in the know when it comes to Social Security.
Meanwhile, if you're worried about a financial hit as a result of Social Security's higher wage cap for 2024, one thing you can do to compensate is put more money into tax-advantaged savings accounts you have access to. These might include a 401(k) plan through your job, an IRA you manage yourself, or an HSA if your health insurance plan requires a high deductible. All these plans allow you to exempt a portion of your earnings from taxes, which could help offset the blow of having to pay more into Social Security.
