1. Workers are being taxed on more earnings to fund the program
Social Security’s main funding source is payroll tax revenue. In fact, it’s a decline in payroll tax revenue that has the program’s Trustees worried about benefit cuts in a little more than 10 years.
As baby boomers exit the workforce, they’re going to stop paying into the system. And while new workers will come in as boomers leave, the number of workers exiting the labor force is expected to exceed the number available to replace them. That’s going to force Social Security to tap its trust funds to keep up with scheduled benefits until they run dry — at which point, benefit cuts may have to happen.
Meanwhile, this year, there’s a higher wage cap than last year for Social Security tax purposes. In 2022, earnings of up to $147,000 were subject to payroll taxes. This year, earnings of up to $160,200 can be taxed to fund Social Security.
2. Qualifying for benefits is getting harder
It’s a big myth that everyone is eligible for Social Security once they get older. In reality, you need to pay into Social Security to qualify for benefits down the line.
Social Security eligibility hinges on accruing 40 work credits in your lifetime, at a maximum of four credits per year. And the value of a work credit can change from one year to the next.
In 2022, it took $1,510 in earnings to earn a single work credit. This year, it takes $1,640 in earnings.
