If you’ve been following the news, you might know that inflation is on the rise, gas prices are skyrocketing, and the stock market is stuck in a continuing slump. But are you up to date on Social Security?
If you’re not yet at the age where you collect benefits, Social Security may not be on your radar, and understandably so. But it is nevertheless important to keep an eye on the program.
On the one hand, these benefits could eventually become an important source of income for you. Plus, the changes you make during your working years could lead to higher benefits down the line.
Also, even if you don’t currently collect social security, if you make money, you pay taxes to fund it. It is therefore important to understand what these taxes look like. With that in mind, here are some recent changes to Social Security that you may not be aware of.
1. Benefits increased by 5.9%
Why should you care about the increase in Social Security this year if you are not yet receiving benefits? Namely, because you should know that 5.9% was the biggest increase in the program in decades – and it’s already falling short due to rapid levels of inflation.
In fact, understanding the shortcomings of Social Security should encourage you to build up a nest egg rather than planning to fall back on those benefits eventually. Chances are they won’t do a good enough job of covering your senior living expenses – not even close.
2. The salary cap has increased
Social security derives most of its income from social contributions. But workers do not pay these taxes on all their earnings. Instead, an annual cap is put in place.
Last year, salaries up to $142,800 were subject to Social Security taxes. This year, that cap has increased to $147,000. If you have a higher income and aren’t sure why your paychecks have gone down, this might be your answer.
3. The value of work credits has increased
Being able to collect Social Security in retirement is not a given. To qualify for benefits, you will need to earn enough money to accumulate 40 work credits over your lifetime.
The value of a work credit changes from year to year and you can earn up to four work credits per year. Last year, a single work credit was worth $1,470 in earnings. This year, you will need $1,510 in income to get a work credit.
If you have a full-time job, you probably don’t have to worry about work credits. But if you work part-time, it pays to keep an eye on the value of work credits.
Even if Social Security isn’t something you plan to collect for decades, it’s still important to keep up with changes to the program. Some of these changes could have an immediate impact on you, even if you are years away from leaving the workforce for good.
Plus, as mentioned, knowing how the program works could help you make smart decisions when you’re younger, which will lead to higher benefits. If you’re able to develop your job skills and get a raise, for example, that could lead to more generous benefits down the line. And that’s something your future self will thank you for.