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Although Social Security has been around for years, the program keeps changing. But some of these changes may be less obvious than others. Here are some changes to the program in 2021 and how they might affect you.
1. Benefits are higher this year
Every year, Social Security recipients are entitled to a cost of living adjustment, or COLA. COLAs are based on data from the Consumer Price Index for urban and office workers (CPI-W). When the index shows a slight increase in the cost of common goods and services, the benefits increase.
In 2021, seniors affiliated to Social Security saw their benefits increase by 1.3%. For context, in 2012, the elderly obtained a much larger increase – 3.6%. In 2016, however, they got no raise at all.
Image source: Getty Images.
Next year, however, the COLA that seniors will receive is expected to be much more generous than it has been in the past two years. That’s because the rate of inflation has already risen dramatically – something you may have noticed when shopping for food at the grocery store or filling up with gas at the pump.
We won’t know what the 2022 COLA will look like until Q3 data from the CPI-W is available. But based on what we know now, it’s fair to assume that this will put COLA to shame in 2021.
2. Workers pay taxes on more of their income
Social security is largely financed by social charges. But workers do not pay taxes on all of their income. On the contrary, there is a salary cap which changes from year to year and which dictates the amount of taxable income.
In 2020, workers paid taxes on their first $ 137,700 in earnings. In 2021, this threshold has increased to $ 142,800. Low-income households may be completely oblivious to this change, since it does not affect them. But high incomes lose more of their income.
3. You need higher income to qualify for benefits
To benefit from Social Security benefits at retirement, you must accumulate 40 work credits during your life. Each year, a value is assigned to these credits. In 2020, it was $ 1,140. But in 2021, that value rose to $ 1,470. This means that it becomes more and more difficult to obtain work credits for social security purposes, especially if you are only working part time.
Another thing you should know is that you can only earn a maximum of four work credits per year. But this is not a new rule.
Know your social security details
There is a good chance that Social Security will become an important source of income for you once you retire, so it is important to stay informed about changes to the program. Keeping an eye on these changes can also help you manage your money better. For example, if you are earning an income high enough to be affected by an increase in the salary cap, this is the kind of thing you should plan for.
Even if retirement is many years away, it is useful to learn about how Social Security works. Understanding its nuances will put you in a better position to get the most out of it when the time comes.
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