9 Ways Retirement Will Be Different in 2025

How changes in Social Security, Medicare, 401(k) contributions and more will affect your finances

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.

Here are nine things to know about your retirement money in the year to come.

1. Social Security 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.

Contribution limits are going up for people with workplace retirement plans. In 2025, those ages 50-plus can put up to $31,000 into a 401(k), 403(b) or Thrift Savings Plan (and most 457 plans). That’s $500 above the 2024 cap. The limit for workers 49 and younger ticks up from $23,000 to $23,500 in 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.

5. RMDs

People ages 73 and older must make annual minimum withdrawals from traditional IRAs and workplace retirement plans. Roth IRAs and workplace accounts are exempt from these required minimum distributions, or RMDs, as long as the original account owner is alive.

The IRS calculates your RMD based on the account balance and your life expectancy. You’ll owe federal income taxes on the withdrawal, at your regular tax rate. If you turned 73 in 2024, you have until April 1, 2025, to take your RMD; otherwise, the deadline is Dec. 31, 2024.

New RMD rules taking effect in 2025 will affect some heirs who inherit an IRA. These beneficiaries typically must make minimum annual withdrawals but until 2025 have been able to spread them out over their lifetime. Starting Jan. 1, IRA inheritors other than a spouse — such as a child, sibling or a close friend — have 10 years to deplete the account.

This 10-year rule was part of a 2019 federal law on retirement savings but the IRS delayed implementation for several years. It applies to beneficiaries of accounts whose original owner died on or after Jan. 1, 2020. (Surviving spouses, in most cases, still have their full lifetime to empty an inherited account.)

6. Standard tax deduction

Most taxpayers take the standard deduction rather than itemizing their tax returns, and taxpayers ages 65 and up get to take a little bit more out of their taxable income. The IRS annually adjusts the amounts for inflation.

Here are the regular standard deductions for 2024 tax returns (the ones you must file by April 15, 2025):

• Married couple filing jointly: $29,200 (up from $27,700 in the 2023 tax year)
• Single or married filing separately: $14,600 (up from $13,850)
• Head of household: $21,600 (up from $20,500)

And here are the standard deductions for taxpayers ages 65 and older:

• Married filing jointly (if one or both spouses is 65-plus): $32,300 (up from $30,700 in 2023)
• Single or married filing separately: $16,550 (up from $15,700)
• Head of household: $23,850 (up from $22,650)

7. Full retirement age

Congress voted in 1983 to gradually raise the Social Security full retirement age (FRA) — the age when you become eligible to claim 100 percent of the retirement benefit calculated from your lifetime earnings — from 65 to 67. In recent years, it has been going up two months at a time, based on year of birth.

For people born in 1958, FRA is 66 years and 8 months, and for those born in 1959, it’s 66 years and 10 months. You’ll reach full retirement age in 2025 if you were born between May 2, 1958, and Feb. 28, 1959. Under current law, FRA will be 67 for people born in 1960 or later.

You can start collecting retirement benefits before FRA — the minimum age is 62 — but you’ll take a benefit hit and lock it in. People who turn 62 in 2025 will collect up to 30 percent less per month, for life, than if they wait to claim at 67. For every month you delay, your prospective benefit increases a little, up to age 70, when you can claim your maximum retirement benefit.

8. Social Security earnings test

If you claim Social Security retirement benefits before reaching FRA and continue to do paying work, your benefits may be temporarily reduced if your annual work income exceeds a certain limit. This is called the “earnings test.” Here’s how it will work in 2025:

• If you will reach FRA in a future year, the 2025 earnings limit is $23,400 (up from $22,320 in 2024). Social Security withholds $1 in benefits for every $2 in earnings above the cap.
• If you will reach FRA in 2025, the income threshold is $62,160 (up from $59,250). The withholding in this case is less: $1 in benefits for every $3 in earnings above the limit.

Once you attain full retirement age, the earnings test goes away. You get the monthly benefit you qualify for, with no deduction for work income, and the SSA recalculates your benefit amount to make up for the past withholding.

9. Qualified charitable donations

The IRS allows people age 70½ and older to make a qualified charitable donation (QCD) directly from an IRA and exclude it from their taxable income. The ceiling for an eligible donation is going up, from $105,000 in the 2024 tax year to $108,000 in 2025.

Along with reducing your tax bill, qualified charitable distributions count toward your RMD. If you take your mandatory withdrawal in the form of a QCD, it’s tax-free, provided you make the donation directly from your retirement account to the charity. And you don’t have to itemize, as is the case if you’re taking charitable donations as regular tax deductions.

https://www.aarp.org/money/retirement/changes-2025/