Find out what are the changes retirees will see in Social Security and Medicare for 2025!
Retirees should prepare for significant changes to Social Security and Medicare in 2025. The bill expected to enhance Social Security benefits has become a law, and all beneficiaries will see cost-of-living adjustments tied to inflation. Additionally, Medicare enrollees will benefit from a $2,000 annual cap on out-of-pocket Part D prescription drug costs, aiming to ease healthcare expenses.
Here are the key updates for the year:
Social Security Benefits Increase
In late 2024, a bill was passed to raise Social Security payments for millions of people, including federal, state, and local government workers, or in public service jobs, like teachers, firefighters, and police officers. Now signed, the bill eliminated two Social Security Fairness Act rules that previously reduced benefits:
- Windfall Elimination Provision (WEP): reduced benefits for people with pensions from jobs that didn’t pay Social Security taxes.
- Government Pension Offset (GPO): reduced spousal, widow, or widower benefits for individuals with government pensions.
According to the Congressional Research Service, these changes will affect around 2.5 million people, potentially increasing their monthly payments, and will provide retroactive payments starting from December 2023.
2.5% Cost-of-Living Adjustment (COLA)
All Social Security beneficiaries will receive a 2.5% increase in their benefit payments in 2025. Although lower than 2024’s 3.2% adjustment, the 2,5% increase is a reflect of a slower inflation.
This change begins with January payments and impacts over 72.5 million Americans, including Supplemental Security Income (SSI) recipients. According to the Social Security Administration, the average retirement benefit will rise from $1,927 in 2024 to $1,976 per month in 2025.
Medicare Part B Premiums Increase
Covering doctor visits, outpatient services, and medical equipment, monthly Medicare Part B premiums – often deducted from Social Security checks – will rise to $185 in 2025, up from $174.70 in 2024. On top of that, Part B deductibles will also increase from $240 to $257.
Premiums are based on MAGI (Modified Adjusted Gross Income) from 2 years prior. So, for 2025, individuals earning $106,000 or less, and couples earning $212,000 or less, will pay the standard premium.
Medicare Part D Prescription Drug Cost Cap
Medicare Part D will now cap annual out-of-pocket prescription drug costs at $2,000, a significant change under the Inflation Reduction Act. Here’s how it works:
- Beneficiaries pay up to their plan’s deductible (maximum $590 in 2025).
- After meeting the deductible, they pay 25% coinsurance until reaching $2,000 in out-of-pocket costs.
- After that, catastrophic coverage eliminates further costs for the rest of the year.
Additionally, insulin costs remain capped at $35 per month, including insulin pumps covered under Part B. Beneficiaries can also opt to spread out payments over the year instead of paying all at once.
Additional Changes For 2025
- Taxable Earnings Cap: the maximum income subject to Social Security taxes will increase to $176,100, up from $168,600 in 2024.
- Retirement Earnings Test: beneficiaries under full retirement age can earn up to $23,400 in 2025 without penalty. For those reaching retirement age, the limit increases to $62,160. Once full retirement age is reached, withheld benefits are returned.