How changes in Social Security, Medicare, 401(k) contributions and more will affect your finances.
From AARP — By Andy Markowitz —
Retirement is not static. Even when the kids are gone and the career is done, your lifestyle and expectations are constantly evolving. So are your finances. Areas key to retirees’ economic life, from Social Security payments and Medicare costs to the way we contribute to and withdraw from savings plans, will see changes in 2025.
1. Social Security retirement payments
Social Security’s cost-of-living adjustment (COLA) boosts benefits in 2025 by 2.5 percent. The average retiree will see a $49 increase in their monthly payments, from $1,927 to $1,976, according to the Social Security Administration (SSA). For the surviving spouse of a late beneficiary, the estimated average survivor benefit will increase by $44, from $1,788 to $1,832 a month.
People drawing retirement, survivor or Social Security Disability Insurance (SSDI) benefits will see the increase in their January payments. Those getting Supplemental Security Income (SSI), a benefit administered by the SSA for people who are 65 and older, blind or have a disability and have very limited income and assets, will receive their first COLA-boosted payment Dec. 31.
The coming year’s COLA reflects changes in prices for a set of consumer goods and services in the third quarter of 2024 compared to the same period the year before. Inflation cooled slightly over that time, resulting in a dip from 2024’s 3.2 percent adjustment.
How the COLA affects beneficiaries’ buying power will depend largely on inflation trends in the year ahead. If the rate continues declining, the 2.5 percent benefit bump could provide retirees with a measure of protection, but if the rate rises, the increase in consumer prices could swallow up the COLA gain.
2. Medicare costs
Another potential drag on the COLA’s effectiveness is rising Medicare premiums. For the second straight year, the base rate for Medicare Part B, which covers doctor visits and other outpatient treatment, is going up by 6 percent, from $174.70 a month to $185.
Most Medicare enrollees pay this standard rate directly from their Social Security payments. For this group, the premium increase effectively trims the COLA benefit boost by $10.30 a month. Premiums are higher for what Medicare considers high earners — in 2025, incomes above $106,000 for individual taxpayers and above $212,000 for couples filing jointly.
The annual deductible for Part B is also increasing, from $240 in 2024 to $257 in 2025.
Medicare enrollees who have Medicare Advantage (MA) coverage or Medicare Part D prescription drug plans can see widely varying costs, as these plans are provided by private insurers. Medicare officials estimate the average monthly premium for an MA plan will decrease by $1.23 a month, from $18.23 to $17, and that more than 4 in 5 people with MA plans will not see any increase.
Average Part D premiums are also projected to drop, from $41.63 a month for a stand-alone drug plan in 2024 to $40 in 2025. And starting in 2025, there’s a $2,000 cap on annual out-of-pocket costs on prescriptions for both Part D policies and drug coverage in MA plans. Some 3.2 million people with Part D plans will save money on covered prescriptions due to the cap, an August 2024 AARP study found.
3. Retirement plan contributions
The IRS sets limits on how much you can contribute each year to a retirement savings plan, and there are multiple tiers (including a new one for 2025 — see below).
For an individual retirement account (IRA), the standard cap for the 2025 tax year is $7,000. But if you are 50 or older, you can make a catch-up contribution of up to $1,000, for a total of $8,000. The limits are the same as in 2024 — and if you haven’t yet maxed out your contribution for 2024, you still can; the deadline is April 15, 2025.
4. ‘Super catch-up’ contributions
Starting in 2025, workers near retirement age can put even more into employer-sponsored retirement plans. The so-called “super catch-up” contribution enabled by the SECURE 2.0 Act, a 2022 federal law designed to help U.S. workers save more, goes into effect Jan. 1.
Under this provision, savers ages 60 through 63 can make bigger catch-up contributions than other 50-plus workers: up to $11,250 over the standard limit, for a total of $34,750.
Early-60s workers can make super catch-up contributions to a 401(k), 403(b), governmental 457 or Thrift Savings Plan. The super catch-up is indexed to inflation and may increase year to year.
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