By Ben Young, Financial Advisor, Astute Wealth Management
Social Security and Medicare FAQ
Many Social Security and Medicare regulations have been modified heading into 2025 which on the surface largely appear positive moves, but a deeper look into the changes demand individuals to closely consider the impact.
In fact, 2025 may be referred to as the year of the “buts” for each new rate or date change has a compensating downside.
And as is customary, Astute Wealth is prepared to help clients understand the changes and discuss methods for contending with the potential implications to your wealth development and preservation. Please be advised that we are bringing you up to date on what we know, now, and will apprise you of additional changes and actions as they are agreed to and passed during the year.
Here is a summary of what the Social Security Administration has in place for 2025.
- The Cost-of-Living Allowance (COLA) is up slightly for 2025, but the overall impact is likely to be less when increased costs of Parts B and D are factored into the equation.
- The maximum amount of taxes is higher, but the full retirement age also is older for 2025.
- Wage earners also receiving income from work and investments may still have to pay Federal taxes on up to 85% of their Social Security payments, but President Trump has floated the possibility of the Internal Revenue Service (IRS) eliminating taxes on Social Security.
- Individuals, mostly those who worked in both the public and private sectors and thus were disqualified from “double dipping” and not receiving Social Security, also will start receiving Social Security benefits – but may not begin seeing the payments for such until 2026.
- Medicare has eliminated the deductible “donut hole” lowering out of pocket costs to $2,000, but higher income earners may be paying increased Part B and D premiums on top of higher base costs.
COLA
Last year ended with individuals receiving notices that COLA would increase 2.5% for 2025. The bump was less than the 3.2% increases recipients received for 2024. Furthermore, it was the smallest increase in year over year changes since 2021. Thus, the average monthly 2025 payment for retired singles is $1,976 or about $50 above than the 2024 amount. The benefit for married couples based on an average monthly check of $3,089 is up about $75 over the prior year.
However, modifications to Medicare Part B and D premiums which are subtracted from the Social Security checks can in many situations cut deeply into the higher 2025 Social Security payouts. For instance, the standard monthly Part B premium is increasing to $185 and insurers are also putting through increases in their Part D prescription subscriptions.
An example of the impact is the situation where a single Social Security retiree receives only a $16 net benefit per month after increased Part B and D premiums are factored into the total 2025 equation. This particular example includes the recipient receiving the 2.5% COLA for 2025 and therefore $736 more than in 2024 but also increased Medicare premiums totaling $543.20 more. Only $193 is left to spread over the 2025 year or $16 and change per month.
HIGHER WAGE CAP/FULL RETIREMENT AGE
Meanwhile, the Social Security wage cap on workers’ earnings has been boosted by $7,500 to $176,100 for 2025. Higher tier wage earners will see more dollars withheld from their checks.
Another tweak which will cause some consternation for individuals hoping to begin taking benefits are the changes to what is considered full retirement age (FRA). We all remember when 65 was a lock for full retirement. No longer.
The Social Security Administration now has regulations in place adjusting the FRA for those born in 1958 or later to as much as 67 years old.
For individuals born in 1958, FRA is considered 66 and 6 months and therefore attained in 2024.
FRA for those born in 1959 occurs this year at age 66 and 10 months.
Born in 1960 or later? Your FRA is 67 years and will be in play for 2026.
FEDERAL SOCIAL SECURITY TAXATION/POSSIBLE TAX ELIMINATION
Another complication which is subject to change, possibly in 2025 but more likely if enacted for 2026, is the elimination of Federal taxes on Social Security for those still working or earning significant investment income. Currently the IRS has a formula whereby it can tax 50% to 85% of Social Security income above certain thresholds. President Trump is aware of this and has raised the possibility of eliminating this line item from returns.
SOCIAL SECURITY FAIRNESS ACT
The “Fairness Act” legislation was passed late in 2024 allowing for payments to individuals who in the past were either receiving reduced Social Security benefits or none at all. The Act knocked out Windfall Elimination and Government Pension Offset regulations which previously denied Social Security benefits to some individuals (mainly public sector workers) who received pension income from employers that did not participate in paying Social Security payroll taxes.
The new law is retroactive to January 2024, but the 3.2 eligible recipients – many teachers, firefighters and police officers, federal employees covered by the Civil Service Retirement System and individuals who worked under a foreign social security system — are not likely to see upwards adjustments in their monthly payments until sometime in 2026.
MEDICARE: NO MORE DONUT HOLES BUT HIGHER PREMIUMS
The two biggest pieces of news from Medicare are the changes to the Part D prescription program and the impact of the new income related monthly adjustment amount (IRMAA).
The main change to Part D for 2025 is the capping of the real out of pocket limit at $2,000 inclusive of catastrophic approved medications. In the past, there was a gap between the $2,000 limit and catastrophic approved medications that were not covered until $8,000, leaving a $6,000 donut hole to be picked up by the individual.
Another change is the capping of the cost of insulin for seniors at $35 when the expense has run as high as $400 per month in previous years.
Counter acting this positive move is the possibility you will be paying more for Part B and D premiums in 2025. Individuals with Original Medicare and Medicare Advantage Plans are experiencing surcharges beginning this year based on their 2023 tax year Modified Adjusted Gross Income (MAGI).
For 2025, Medicare single or married filing separately beneficiaries with income exceeding $106,000 and joint filers exceeding $212,000 are subject to the surcharge. Thus, these categories are experiencing monthly Part B premiums ranging from $259 to $628.
IRMAA surcharges are calculated on a scale with five income brackets topping out at $500,000 and $750,000 respectively for individual and joint filers.
One important swamp to watch out for is a spike in income that could contribute to your IRMAA income level. Roth conversion timing and taking of required minimum distributions require proper planning to avoid pushing your income higher into IRMAA territory.
The preceding is not all inclusive of all 2025 Social Security or Medicare changes. If you have questions or need additional insight into plans or help planning, Astute Wealth has resources specializing in these areas available to help.
For more information, please contact Ben Young, founder and owner of Astute Wealth Management, at (530) 677-6001 or by email, ben@astutewealth.com.
Astute Wealth Management and Astute CPA service their Sacramento and broader California and nationwide client bases from offices in Cameron Park and Folsom, California.
Astute Wealth Management (astutewealth.com) is a comprehensive provider of money and wealth management services. The company was founded nearly 20 years ago by Ben Young (ben@astutewealth.com) who serves as the lead Financial Advisor and manages staff and strategic relationships providing leadership and support in investment management, income planning, tax planning and preparation, retirement and estate planning along with Social Security and Medicare analysis and planning.
Astute Wealth specifically offers securities through LPL Financial, a registered investment advisor, member FINRA/SIPC.
Astute Wealth serves its California and nationwide client roster from its strategically situated offices in Cameron Park and Folsom respectively located in the growing El Dorado and Sacramento Counties. For more information or to schedule a personal meeting, please call (530) 677-6001 to speak to one of our professional representatives.
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