Retirees can expect big changes in 2025 when it comes to their Social Security and Medicare benefits.
President Joe Biden is expected to sign a bill that will increase Social Security benefits for some retirees. Additionally, the annual Social Security cost of living adjustment goes into effect for all beneficiaries.
And Medicare enrollees who are concerned about health care costs now have a $2,000 annual cap on Part D prescription drugs, intended to help ease those financial pressures.
Here are some important changes to note for the coming year.
Some retirees could benefit from an increase in their benefits
The Senate passed a bill in the final legislative days of 2024 aimed at increasing Social Security benefits for the millions of people who receive pensions for their work in federal, state and local governments, or in employment jobs. public service such as teachers, firefighters and police officers. The House passed the bill in November.
Now, Biden is expected to sign the bill in the coming days.
The Social Security Fairness Act removes two provisions that reduce Social Security benefits for certain individuals who also receive pension income from public employment for which Social Security payroll taxes have not been paid.
This includes the Windfall Elimination Provision, or WEP, which reduces Social Security benefits for people who also receive retirement or disability benefits from employers who have not withheld security taxes social.
It also includes the Government Pension Offset, or GPO, which reduces Social Security benefits for spouses, widows, and widowers who receive their own government pensions.
Combined, the rules affect about 2.5 million beneficiaries, according to the Congressional Research Service. Once enacted, the law could provide higher benefits to these individuals.
In particular, it could provide for retroactive payments of these benefit increases for months after December 2023.
The legislation marks the biggest change to Social Security since some couples claiming strategies were phased out in 2016, said Martha Shedden, president of the National Association of Registered Social Security Analysts.
“We’re kind of in the dark as to how this process will play out, when people will see this increase and how the retroactive (benefits) will be applied,” Shedden said.
All Social Security recipients will receive 2.5% COLA
In 2025, all beneficiaries will see their Social Security benefits increase by 2.5%, thanks to an annual cost-of-living adjustment.
It should be noted that the increase in 2024 was 3.2%. This year’s COLA is the smallest increase beneficiaries have seen since a 1.3% increase in 2021, reflecting a decline in the pace of inflation.
The change will be effective with January checks for more than 72.5 million Americans, including Supplemental Security recipients.
The average retirement benefit for workers will be $1,976 per month, up from $1,927 in 2024, according to the Social Security Administration.
Monthly Medicare Part B premiums increase
Monthly Medicare Part B premiums — which are often deducted directly from Social Security checks — can affect the size of the increase beneficiaries see in their benefit payments in 2025.
Medicare Part B covers doctors, outpatient hospitals, and some home health services, as well as durable medical equipment.
In 2025, the standard monthly Part B premium will be $185 per month, an increase of $10.30 from $174.70 in 2024.
Part B deductibles will also increase, to $257, in 2025, an increase of $17 from the annual deductible of $240 for 2024.
Medicare Part B premiums are based on a beneficiary’s modified adjusted gross income, or MAGI, from their tax returns from two years prior. In 2025, beneficiaries who had a MAGI of $106,000 or less in 2023 will pay the standard monthly Part B premium, as will married couples with a MAGI of $212,000 or less.
Beneficiaries with higher incomes will be subject to income-related adjustment amounts, or IRMAAs, which increase their monthly premiums.
$2,000 cap on Medicare prescription drugs takes effect
Annual Medicare Part D drug costs will now be capped at $2,000 as changes passed with the Inflation Reduction Act take effect.
Beneficiaries of Medicare Part D drug plans who have a deductible will pay out-of-pocket costs until that threshold is met. In 2025, the highest deductible for these plans is $590.
Once beneficiaries have paid their full deductible, they will owe 25% of the coinsurance cost until their out-of-pocket spending on generic and brand drugs reaches $2,000. After that, these beneficiaries will have what’s called catastrophic coverage, meaning they won’t have to pay Part D costs out of pocket for the rest of 2025.
However, beneficiaries will also have the option to pay expenses monthly throughout the year, instead of paying them all at once.
Notably, insulin costs have also been capped at $35 per month, both under Medicare Part D-covered treatments and under Medicare Part B, for insulin used with pumps.
Social Security Trust Fund Exhaustion Dates Approach
By 2024, Social Security administrators projected that the trust fund the program relies on to help pay retirement benefits could be exhausted by 2033. By that date, only 79 percent of those benefits could be payable, at unless Congress acts sooner.
Social Security’s combined trust funds – used to pay for both retirement and disability benefits – are expected to run out in 2035.
Now that the calendar turns to a new year, those sell-out dates are closer.
Notably, the previously mentioned Social Security Fairness Act, which will provide increased benefits to some retirees, could bring the trust fund exhaustion date six months closer.
“That’s the big question right now: what can be done to shore up these trust funds,” Shedden said. “This will require very comprehensive bipartisan changes to several parts of the program’s Social Security rules.”
However, most financial advisors stress that this should not affect personal claims decisions.
For younger generations, future benefits could change, said George Gagliardi, a certified financial planner and founder of Coromandel Wealth Strategies in Lexington, Massachusetts.
“But for those who are already receiving or about to receive Social Security checks, I don’t think there’s anything to worry about,” Gagliardi said.
Other important changes to note
- The maximum taxable income – the amount of wages subject to Social Security payroll taxes – will rise to $176,100 in 2025, up from $168,600 in 2024. Once workers reach this cap, they will no longer contribute to the program for the rest of the year.
- Social Security beneficiaries who claim benefits before full retirement age and continue to work face what is known as a retirement income test. Income exempt from the retirement income test now amounts to $23,400 per year in 2025 for people below full retirement age, compared to $22,320 per year in 2024. For each $2 of earnings over the limit, $1 of benefits is withheld. For the year a person reaches retirement age, a higher threshold of $62,160 in earnings applies, compared to $59,520 in 2024. For every $3 in earnings above the limit , $1 of benefits is withheld. Please note: this only applies to the months preceding full retirement age. As of the month of their birthday, the retirement income criterion no longer applies. It is important to note that once a beneficiary reaches full retirement age, all previously withheld benefits are applied to the monthly benefit.
- Do you want to speak face to face with Social Security? Starting Jan. 6, the agency requires appointments for local office services, such as obtaining Social Security cards. To improve efficiency, the agency asks people who need help to try its online or automated phone services first. However, people who are unable to make an appointment in person, particularly vulnerable people, can still come and receive an in-person service.
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