Five Social Security changes to know in the coming year

Social Security benefits are adjusted annually through a cost-of-living adjustment, or COLA, which is designed to help benefits keep pace with inflation.

Benefits increased 2.8% this year, and they are set to receive a 3.6% COLA next. After that increase, the average retirement benefit is projected to rise from $2,095 to $2,170.

If Medicare Part B costs rise in 2027, people enrolled in both programs could see a smaller net COLA. Even so, the increase still appears to be a fairly strong one.

2. The earnings test threshold is going up

People who claim Social Security before full retirement age and continue working are subject to an earnings test. If they exceed the limit, some benefits are temporarily withheld.

For recipients who will not reach full retirement age by the end of the year, Social Security withholds $1 for every $2 earned above $24,480. That limit is scheduled to rise to $25,560, giving older workers more room to earn before benefits are reduced.

For those who will reach full retirement age by the end of the year, the earnings test limit is $65,160. Above that level, $1 in Social Security is withheld for every $3 earned. That threshold is also set to increase to $67,920.

3. The maximum benefit is increasing

Higher earners may qualify for Social Security's top monthly benefit. The maximum benefit at full retirement age is $4,152 this year and is expected to climb to $4,188.

People who delay claiming past full retirement age can increase their benefit by 8% per year until age 70. That means while $4,188 would be the highest benefit at full retirement age, some retirees could collect as much as $5,358 per month.

4. High earners will pay more Social Security tax

So far, the changes discussed have been mostly positive. But not every adjustment works in retirees' favor.

The wage cap for Social Security taxes is scheduled to rise from $184,500 to $192,300. That means high earners will owe payroll taxes on an extra $7,800 of wages. At the current 12.4% tax rate, that works out to an additional $967.20 paid into Social Security.

Self-employed workers would pay the full additional amount themselves. W-2 employees split that cost with their employers, so their extra Social Security tax would be $483.60.

5. Work credits will be harder to earn

To qualify for retirement benefits, workers need 40 Social Security work credits over their lifetime, with no more than four credits available in any single year. Those credits are earned by paying taxes on a set amount of wages.

At present, one work credit is worth $1,890. That amount will rise to $1,970, which means workers will need more earnings to secure each credit.

There is a lot changing with Social Security in the coming year. Many of the updates are favorable for retirees, but workers will need to take note of the higher wage cap and the tougher work-credit requirement. No matter where you stand, it is worth staying on top of Social Security updates so you know what to expect.