Social Security has been around for a long time, but it still undergoes changes from year to year. There are a few changes that could affect your finances.
1. A cost-of-living adjustment.
Social Security's annual cost-of-living adjustments have been pretty low in recent years. The rate of inflation held steady prior to the year 2021.
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Benefits are getting a big boost because of inflation this year. Social Security recipients can expect to see their benefits increase in the future. The average monthly benefit will be up to $1,657.
Seniors on Social Security won't get to enjoy the raise in full because the cost of Medicare Part B is rising a lot. The standard monthly Part B premium will cost $29.60 more in 2022, which will eat up roughly one-third of the typical beneficiary's COLA.
2. A higher wage cap is used for Social Security tax.
Workers don't pay Social Security taxes on their earnings. The wage cap is put in place to determine how much income gets taxed.
Social Security taxes will be applied to earnings of up to 142,800 in 2021. The wage cap will increase to 147,000 next year. Lower earners won't be affected by this change, but higher earner could lose more of their income to Social Security.
3. A higher earnings test limit.
It is possible to collect Social Security while also holding down a job. If you want to avoid having your benefits taken away, you need to adhere to the earnings test limit.
Every year that limit changes. You can make up to $18,960 in 2021. If you earn more than $2 above the cap, you'll have $1 in Social Security taken from your pocket. The limit will increase to $19,560 in 2022, so you will be able to make more money.
The earnings test limit is different for those who reach the FRA. If you reach FRA in 2021, you can make up to $50,520 without affecting your benefits. If you earn more than $3 above that threshold, you'll have $1 in Social Security taken away. The limit will rise to over $50,000 in 2022.
You need to accumulate 40 work credits in your lifetime to be eligible for Social Security. The value of a work credit can change over time. A work credit is worth over $1,000 of income. You'll need to earn $1,510 in order to get a work credit.
This change shouldn't matter to you if you work full-time. If you have a 40-hour-a-week schedule, you can easily earn the maximum four work credits per year. If you work part-time, you may need to change your hours to make sure you get the work credits you want.
Stay informed.
Social Security can change from one year to the next. You should keep these changes in mind so you know what to expect in the future.
