CNBC
Retirees can expect big changes in 2025 when it comes to their Social Security and Medicare benefits.
The president, Democrat Joe Biden, is expected to sign a bill that will increase benefits for certain pensioners. In addition, the annual Social Security cost-of-living adjustment due to rising inflation comes into effect for all beneficiaries.
And Medicare members who are worried about health care costs will now have an annual out-of-pocket limit of $2,000 (out-of-pocket) for Part D prescription drugs, intended to help reduce those financial pressures.
Below, we tell you some important changes to keep in mind for this new year:
Some pensioners could have increases
The Senate passed a bill in the final legislative days of 2024 to increase Social Security payments to millions of people who receive pensions for their work in federal, state and local governments, or in public service jobs such as teachers, firefighters and police. The House of Representatives had passed the bill in November and Biden is now expected to sign it in the coming days for it to take effect.
The Social Security Fairness Act eliminates two provisions that reduce benefits for certain people who also have pension income from public employment on which Social Security payroll taxes were not paid.
That includes the Windfall Elimination Provision (WEP), which reduces Social Security benefits for people who also receive pensions or disability benefits from employers who did not withhold Social Security taxes. And the Government Pension Offset (GPO), which reduces benefits for spouses, widows and widowers who receive their own Government pensions.
Altogether, the rules affect about 2.5 million beneficiaries, according to the Congressional Research Service. Once enacted, the law can provide higher benefit payments to those people. Additionally, it may include retroactive payments of those increases for months after December 2023.
The legislation marks the biggest change to Social Security since certain couples’ claim strategies were phased out in 2016, says Martha Shedden, president of the National Association of Registered Social Security Analysts.
“We’re kind of in limbo as to how that process will play out, when people will see that increase and how retroactive (benefits) will be applied,” Shedden added, however.
A 2.5% increase for all beneficiaries
In 2025, all beneficiaries will see a 2.5% increase in their Social Security checks due to the annual cost of living adjustment.
In 2024 that increase was 3.2%. This year’s is the lowest since 1.3% in 2021, reflecting a decline in inflation.
This change will be effective in January checks for more than 72.5 million people, including those who receive Supplemental Security Income.
The average withdrawal will be $1,976 a month, up from $1,927 in 2024, according to the Social Security Administration.
Medicare Part B fees rise
Monthly Medicare Part B premiums, which are often deducted directly from Social Security checks, can influence the increase in benefits beneficiaries receive in 2025.
Medicare Part B covers medical, outpatient hospital, and certain home health services, as well as long-term medical equipment.
In 2025, the standard monthly Part B premium will be $185 per month, up $10.30 from $174.70 in 2024.
Part B deductibles will also rise to $257 in 2025, an increase of $17 compared to 2024.
Medicare Part B premiums are based on the beneficiary’s modified adjusted gross income (MAGI) from their tax returns from the previous two years. In 2025, beneficiaries with a MAGI less than or equal to $106,000 in 2023 will pay the standard monthly Part B figure, as will married couples with a MAGI less than or equal to $212,000.
Beneficiaries with higher incomes will be subject to income-related adjustments (IRMAA) that will increase the monthly payment.
$2,000 drug limit
Starting now, annual out-of-pocket costs for Medicare Part D drugs will be capped at $2,000 as the change approved in the Inflation Reduction Act takes effect.
Beneficiaries of Medicare Part D drug plans who have a deductible will pay out-of-pocket costs until they reach that limit. In 2025, the maximum deductible for those plans is $590.
When beneficiaries meet their full deductible, they will owe 25% of the coinsurance cost until their out-of-pocket costs for both generic and brand-name medications reach $2,000. Afterwards, they will have what is known as catastrophic coverage, that is, they will not have to pay Part D expenses for the rest of 2025.
However, beneficiaries will also have the option to pay monthly costs out of pocket throughout the year, rather than all at once.
In addition, insulin prices have been capped at a maximum of $35 per month, both for treatments covered by Medicare Part D and for insulin used with pumps covered by Part B.
Trust fund depletion approaching
In 2024, Social Security administrators projected that the trust fund the program relies on to help pay retirement benefits could be depleted in 2033. By then, only 79% of those benefits can be paid, unless Congress act sooner.
The combined Social Security trust funds – used to pay for both retirement and disability benefits – are expected to be depleted in 2035.
Now that the calendar has changed year, the dates are getting closer.
In particular, the aforementioned Social Security Fairness Act, which will increase checks for some retirees, can advance the trust fund depletion date by six months.
“The main issue right now is what can be done to strengthen the trust funds,” Shedden said, “that’s going to require very comprehensive, bipartisan changes to multiple parts of the Social Security rules in the program.”
However, most financial advisers stress that this should not affect a person’s decision to claim benefits.
For younger generations, there could be benefit changes in the future, said George Gagliardi, a certified financial planner and founder of Coromandel Wealth Strategies in Lexington, Massachusetts.
“For those who already receive or are about to receive their Social Security checks, I don’t think there is anything to worry about,” he said.
Other important changes
- Maximum taxable earnings – the amount of wages subject to Social Security payroll taxes – will rise to $176,100 in 2025, up from $168,600 in 2024. When workers reach that cap, they will stop paying into the program for the remainder of the year.
- Social Security beneficiaries who claim benefits before retirement age and continue working face what is known as the retirement earnings test. Exempt income under that test is now $23,400 annually in 2025 for those who have not reached full retirement age, up from $22,320 in 2024. For every two dollars in earnings beyond the limit, one dollar is withheld in benefits. By the time the beneficiary reaches the age threshold, the measure of $62,160 of income is applied compared to $59,520 in 2024. For every three dollars in earnings over the limit, one is withheld. This only applies to the months before you reach the regulatory age, from the month of your birthday the test no longer applies. And when you reach retirement age any withheld benefits will be applied to monthly benefits.
- Would you like to speak face to face with the Social Security Administration? Starting January 6, the agency will require appointments for local office services such as obtaining cards. To improve your efficiency, you are redirecting people first to your website or to your phone lines. However, people who cannot make an in-person appointment, especially vulnerable people, can walk-in and receive personalized care.
