An estimated 96.7% of adults aged 60 to 89 receive Social Security. Although the average monthly benefit amount for retired workers was just $1,920 in August 2024, Social Security constitutes a large portion of many people's income.
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In fact, 50% of people ages 65 and up receive half of their total income from the program. Roughly 25% of these individuals get 90% or more of their income from Social Security.
Given Social Security's importance, it might come as a relief that the Social Security Administration has finally announced its COLA -- cost-of-living adjustment -- increase for next year. While it is indeed higher, it might not be quite as high as benefit recipients might have hoped.
Here's what retirees should know about changes to Social Security benefits heading into 2025.
2.5% Benefit Increase
Next year, Social Security benefits and Supplemental Security Income (SSI) payments will increase by 2.5% for nearly 73 million Americans. When you break it down, this is roughly $50 more each month.
If your current Social Security check is $1,920 each month, you'll get around $1,968 -- 2.5% of $1,920 -- starting in January. If you receive SSI, those payments will increase on Dec. 31, 2024.
For context, the COLA increase in 2024 was 3.2%. It's averaged out at about 2.6% over the past decade.
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Benefits Increase and Inflation
While 2.5% might not seem like much, the idea is to keep up with inflation. For the 12 months ending in September 2024, the average inflation rate has been 2.4%. This is 0.1% lower than it was last year.
Ideally, the 2.5% increase will match inflation going into 2025. This means the benefit amount will make up for any increased everyday costs.
Taxable Earnings Will Increase
Starting in January, there will be a few other adjustments to Social Security. Specifically, the maximum taxable earnings will increase from $168,600 to $176,100. This won't be as relevant to current retirees, but those who are nearing retirement age should be aware of this change.
Right now, the Social Security tax rate is 12.4% -- 6.2% for the employee, 6.2% for the employer. With this change, employees will pay up to $10,918.20 in 2025, compared to $10,453.20 currently. The employer will pay the other $10,918.20.
Note that self-employed individuals will have to continue paying the full 12.4% on their own. That's up to $21,836.40 a year in Social Security tax.
This tax will only apply to the first $176,100 of someone's earnings. Any additional earnings won't be taxed.
Notices Go Out in December
If you receive Social Security, expect to receive a notice of your new benefit amount as soon as early December 2024. Unlike previous years, the COLA notice will have a more simplified design -- just one page -- and should be free of complex or overly convoluted language.
Your COLA notice will also include the following:
If you have a my Social Security account, you can view your COLA notice online. This could be quicker than waiting for the notice to arrive via mail. You can also sign up for email or text alerts regarding any changes to your benefits.
Medicare is also set to change in 2025, so head to Medicare.gov for more information. If you have both Social Security and Medicare, access your account's Message Center to see your new benefit amount. Updates there start in late November.
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This article originally appeared on GOBankingRates.com: Social Security Announced a COLA Increase for 2025 -- 5 Things Retirees Should Be Aware Of
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