In 2025, some significant adjustments are on the horizon for retirees concerning their Social Security and Medicare benefits. President Joe Biden is set to approve a new bill that will bump up Social Security payments for certain pensioners, while an annual cost-of-living adjustment (COLA) will apply to all beneficiaries. Plus, those enrolled in Medicare can look forward to a $2,000 annual cap on out-of-pocket expenses for Part D prescription drugs, a relief for many concerned about healthcare costs. Let’s dive into the pivotal changes you should be aware of as the year unfolds.
First off, certain pensioners can expect an increase in their Social Security benefits. The Senate, in its concluding sessions of 2024, passed a bill aimed at boosting Social Security payments for various public service workers, including teachers, firefighters, police officers, and other government employees. The House had already approved this bill in November, and it’s now poised to become law with the President’s signature. The Social Security Fairness Act addresses two specific provisions that have previously curtailed benefits for individuals also receiving pensions from public sector jobs that didn’t pay into Social Security. These are the Windfall Elimination Provision, which affects those with non-Social Security covered pensions, and the Government Pension Offset, impacting spousal or survivor benefits. According to the Congressional Research Service, around 2.5 million beneficiaries will be affected, and the changes may even provide retroactive increases for some eligible recipients. Martha Shedden, president of the National Association of Registered Social Security Analysts, has referred to this as the most notable Social Security change since 2016.
All Social Security beneficiaries will receive a 2.5% cost-of-living adjustment starting in 2025. This adjustment is slightly lower than the 3.2% increase in 2024 and reflects a slowdown in inflation. Over 72.5 million Americans, including those receiving Supplemental Security Income, will notice this increment in their January checks, raising the average monthly retirement benefit to $1,976, up from $1,927 in 2024.
On the Medicare front, the monthly premiums for Part B, usually deducted from Social Security checks, are set to rise. These premiums, which cover various medical services, will see an increase to $185 per month, a jump from $174.70 in 2024. Additionally, the Part B deductible will climb to $257, up from $240. Premiums are tied to a beneficiary’s modified adjusted gross income. Those earning less than or equal to $106,000 in 2023 will pay the standard rate, as will couples earning up to $212,000. Higher-income beneficiaries will face increased premiums due to income-related adjustments.
A major highlight for Medicare recipients in 2025 is the introduction of a $2,000 cap on out-of-pocket prescription drug costs, in line with the Inflation Reduction Act. This means beneficiaries will have a safety net after they reach this spending limit, transitioning into catastrophic coverage with no additional costs for the rest of the year. Additionally, insulin expenses have been capped at $35 per month under both Medicare Part D and Medicare Part B.
The Social Security trust fund is inching closer to depletion, with projections indicating that by 2033, it might run out, potentially resulting in only 79% of benefits being payable unless Congress acts. The newly passed Social Security Fairness Act could further expedite this depletion date by six months. However, comprehensive, bipartisan efforts will be necessary to address and strengthen Social Security’s financial footing. Despite this, financial experts like George Gagliardi urge beneficiaries not to let this impact their claiming decisions, particularly those nearing or already receiving benefits.
Lastly, there are some other noteworthy changes. The maximum taxable earnings subject to Social Security payroll taxes will increase to $176,100 in 2025. For those who claim benefits before reaching full retirement age, the retirement earnings test limit has been adjusted to $23,400 for 2025, increasing the threshold from $22,320 in 2024. Once you reach your full retirement age, any benefits withheld previously due to excessive earnings are recalculated and reimbursed.
For in-person assistance, starting January 6, the Social Security Administration will require appointments for local office visits, guiding individuals to use online or automated phone services where possible to enhance efficiency. However, those unable to schedule appointments, particularly vulnerable groups, will still have access to walk-in services.
