The new retirement numbers for 2025

The key changes include the Social Security COLA, Medicare premiums, the Part D out-of-pocket cap and more.

Happy new year - and welcome to all the new subscribers who signed up for the newsletter over the past few weeks. I’m glad to have you on board. As regular readers know, you can expect to hear from me on a somewhat irregular basis - usually once or twice monthly - with my latest articles for the New York Times and Morningstar, plus the best writing and research on retirement from everyone else around the web.

January is a good time to assess your financial outlook for the year ahead, so let’s do a quick review of a few important new numbers.

Social Security COLA: This year’s 2.5% Social Security cost-of-living adjustment (COLA) is effective with benefits payable this month. As you can see in the chart above, the 2025 COLA is within the normal historical range, following several abnormal years that saw a cumulative increase of nearly 19% to keep up with the fast pace of inflation. (Note: the years in the chart above that look like gaps actually are years when the COLA was zero - no adjustment was awarded.)

For most people, the net COLA will be reduced by the dollar amount of any increase in the Medicare Part B premium. The standard Part B premium for 2025 is $185.00 per month, an increase of $10.30. So, if you're monthly Social Security benefit last year was $2,000, your $50 gross COLA would be reduced to $39.70.

The Part B deductible is $257 (up from $243 in 2024). All the data on changes to premiums, deductibles and Income-Related Monthly Adjustment Amounts (IRMAA) can be found at the Medicare website.

Part D out-of-pocket cap: The new $2,000 cap on your Part D prescription drug out-of-pocket outlays is now in place for drugs covered by your plan. This change, which was included in the Inflation Reduction Act of 2022, strengthens Part D insurance plans considerably. Your premium may have jumped, but before this change, you never could be sure when you’d need an expensive drug that will send your total costs for the year soaring. What if you’re prescribed a costly new medication that isn’t covered by your plan? You still have options. Ask your health care provider if an alternative medication might work that is included in your plan’s formulary. And, if there’s a medical reason for you to use the off-formulary drug, you can file an appeal requesting an exception. If the appeal is rejected, another level of appeal is available that goes before an independent review firm hired by Medicare.

Also new for 2025 is a Medicare Prescription Payment Plan option for enrollees who experience high out-of-pocket costs and struggle to pay before they reach the $2,000 cap. This will allow you to spread expected costs across the calendar year instead of paying in one lump sum. All Part D plans must offer these payment plan options.

A few other odds and ends . . .

• The limit on 401(k) contributions this year is $23,500 (up from $23,000 in 2024) The catchup contribution limit for people age 50-plus is an additional $7,500 - but if you’re age 60-63 you can take advantage of a new “super catch-up limit of $11,250. The limit on IRA contributions remains $7,000, and the catch-up contribution limit for those age 50-plus is $1,000 (no change in either of those figures). See this page at the IRS website for details.

• Required minimum distributions: they begin at age 73, as per the SECURE 2.0 Act - but keep an eye on Congress. Lawmakers love raising the RMD starting age.

• WEP/GPO repeal: President Biden signed the Social Security Fairness Act on January 5th, repealing the controversial Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). These provisions sharply reduced earned Social Security benefit amounts for some public sector workers. The logic was inscrutable to all but policy analysts and actuaries, and the provisions provoked fury over the years from affected workers and repeated lobbying efforts at reform or repeal. The Social Security Administration currently is evaluating how the new law will be implemented. This likely will take some time, as the changes are complex, and the SSA is dramatically understaffed. Executive branch turnover also won’t help - the Biden-appointed SSA commissioner (Martin O’Malley) already has departed, and there’s an acting head of the agency until a new commissioner is confirmed. The repeals of WEP and GPO are retroactive to December, 2023.

What I’m reading

What to do when grandparents compete with one another . . . United Health’s army of doctors helped the company collect billions more from Medicare . . . Even rich retirees fear outliving their money . . . How Americans invented and reinvented old age . . . State auto-IRA plans could affect Medicaid eligibility in some states . . . Telemedicine in Medicare faces an uncertain future . . . Trump health picks take longevity movement mainstream . . . What matters more for longevity - genes or lifestyle?