If you’ve been paying attention to the news, you may have noticed that inflation is on the rise, gas prices are soaring, and the stock market has been in a prolonged slump. However, how current are you on Social Security?
Social Security may not be on your mind, which is understandable if you are not yet eligible to receive benefits. Nevertheless, it is important to monitor the program.
For one thing, these benefits may become a significant source of income for you in the future. In addition, the decisions you make during your working years may position you for increased benefits in the future.
Moreover, even if you’re not currently collecting Social Security, if you’re earning money, you’re funding it through taxes. Therefore, it is essential to understand the nature of these taxes. Consequently, here are a few recent alterations to Social Security that you may not be aware of.
1. Benefits got a 5.9 percent raise
Why should you care about this year’s Social Security increase if you have not yet begun receiving benefits? Specifically, because you should be aware that the program’s 5.9 percent increase was the largest in decades, and it’s already falling short due to rising inflation rates.
Understanding Social Security’s shortcomings should motivate you to save for your own retirement rather than relying on these benefits in the future. The likelihood is that they will not come close to covering your senior living expenses.
2. The wage ceiling was raised
The majority of Social Security’s revenue comes from payroll taxes. However, workers do not pay these taxes on their entire income. In lieu of this, an annual cap is implemented.
In 2016, Social Security taxes applied to wages of up to $142,800. This year, the limit has been raised to $147,000. This could be the explanation if you’re a high-earner whose paychecks have been decreasing and you don’t know why.
3. The worth of work credits increased
Receiving Social Security in retirement is not guaranteed. To qualify for benefits, you must accrue 40 work credits over the course of your lifetime.
The value of a work credit fluctuates annually, and you can earn up to four work credits per year. In 2016, a single work credit was equivalent to $1,470 in earnings. This year, you must earn $1,510 to qualify for a work credit.
Work credits are something you probably do not need to worry about if you have a full-time job. However, it pays to keep track of the value of work credits if you work part-time.
Even if you don’t plan to collect Social Security for decades, it is still important to keep up with program changes. Some of these changes may have an immediate impact on you, even if you’re still years away from leaving the workforce permanently.
In addition, as previously mentioned, understanding how the program operates could help you make wise decisions when you are younger that result in greater benefits. For instance, if you’re able to improve your job skills and earn a raise, this could lead to more generous benefits in the future. This is something your future self will appreciate.