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    • Social Security is announcing two big changes for 2025
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    Social Security is announcing two big changes for 2025

    Kathleen William Posted on

    Social Security announced changes that will affect the amount of money current and future retirees have next year.

    Christy Bieber
    | The colorful fool

    Recently, the Social Security Administration announced two important changes that will affect both current and future retirees. Both changes relate to how much money you'll have in your pocket next year. Here's what you need to know:

    1. Current Social Security recipients will receive a cost of living adjustment

    The first major announcement affects current retirees and others who are currently receiving Social Security benefits. According to an Oct. 10 announcement, everyone receiving Social Security benefits will receive a 2.5% cost of living adjustment (COLA) in 2025. That's slightly less than the average COLA of 2.6% that Social Security recipients have received over the past decade, the announcement said.

    COLAs occur in most years, although they do not occur every year. They are automatically integrated into Social Security and are calculated based on a formula that looks at how a consumer price index changed in the third quarter of the year. When the price index shows inflation, retirees receive a benefit increase so their purchasing power does not change.

    The 2.5% COLA that Social Security recipients will receive in 2025 will result in the typical retiree receiving about $50 more per month in their payments. The additional money will appear on your checks starting in January.

    2. Current workers may owe more Social Security taxes

    The other big announcement concerns current workers and particularly those earning higher incomes. This is about how much of your income is taxed by the Social Security Administration.

    In 2024, the “maximum taxable amount,” which is the maximum amount of income subject to Social Security tax, is $168,600. However, this amount will increase next year. It rises to $176,100.

    Due to inflation and wage growth, the maximum taxable amount also increases. As prices rise and people make more money, more of it is taxed. Because benefits are based on the amount you pay into the system and you are only credited for the income you earn up to the taxable maximum, it also means people who will have to pay more in 2025 will get one later in life will see greater benefit result.

    Of course, not very many people make $168,600 or more per year, so they won't be affected by this change. Only those who have an income above this limit have to pay more.

    The current tax rate for Social Security is 6.2% paid by employees and 6.2% paid by employers. That means these workers and their employers could each owe an additional $465 per year if they earn at least $176,100. Income above this limit remains tax-free. This change will also come into force in January 2025.

    Both current retirees and future workers need to understand the changed rules announced by the Social Security Administration, as seniors will have a little more money next year and high earners will have a little less. Start planning for these changes now so you can be ready for 2025.

    The Motley Fool has a disclosure policy.

    The Motley Fool is a content partner of USA TODAY, providing financial news, analysis and commentary designed to help people take control of their financial lives. Content is independently produced by USA TODAY.

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    Kathleen William
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