3 Social Security Changes You Probably Didn’t Know About
MAll older people view social security as an essential and stable source of monthly income. But while Social Security has been around for many decades, the program tends to undergo changes on a yearly basis, some of which may not be so obvious. Here are some changes to Social Security since the beginning of 2022.
1. Benefits have increased significantly
The elderly on Social Security don’t get stuck with the exact same monthly benefit for the rest of their lives. If that were to happen, they would be in financial trouble due to the natural lure of inflation.
That’s why Social Security benefits are subject to an annual cost-of-living adjustment, or COLA, to make sure they keep up with inflation. Because inflation soared in the latter part of 2021, Social Security benefits got a COLA of 5.9% at the start of 2022 — the most generous in decades.
Next year’s Social Security COLA will not be announced until October, as it will be calculated on the basis of third quarter inflation. But with inflation soaring this year, seniors are undoubtedly anticipating an even bigger increase for 2023.
2. Seniors have lost purchasing power despite a generous increase
Social Security recipients may have seen their benefits increase by 5.9% this year. But the inflation rate has largely exceeded this increase, leaving seniors to lose their purchasing power.
In June, the consumer price index, which measures changes in the cost of goods, rose 9.1% on an annual basis. When we compare this increase to the increase that seniors got at the start of the year, this 5.9% increase seems far from impressive.
3. Workers were charged more taxes for social security purposes
Social Security derives most of its funding from social charges. But high earners do not necessarily pay social security contributions on all their earnings.
Each year, a salary cap is established for social security tax purposes. In 2021 it was $142,800, but in 2022 it went to $147,000. That means high earners are paying Social Security taxes on an additional $4,200 in income this year. And there’s a good chance they’ll face an even higher Social Security tax burden next year.
It’s not automatically a terrible thing. The reality is that Social Security needs as much tax revenue as possible to stay afloat. Some lawmakers have even proposed lifting the wage cap altogether so that workers pay social security contributions on all of their earnings.
While this change is only a proposal and by no means imminent, it puts a modest increase in the salary cap in a much better light. After all, paying social security taxes on $4,000 or $5,000 of extra earnings is better than paying them on $100,000 or more.
Keep an eye out for Social Security changes
Whether you’re currently collecting benefits or have many years ahead of you in the workforce, it’s important to stay informed about Social Security changes. Being informed could help you not only to claim benefits strategically, but also to better plan your own retirement.
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