Social Security sends notices revealing size of 2025 benefit checks

On November 24, 2024By Littum

A new cost of living adjustment of 2.5%

By 2025, retirement benefits will increase by about $50 a month on average, according to the Social Security Administration.

This is due to the annual cost of living adjustment of 2.5%.

In particular, the benefit increase for 2025 will be the lowest since 2021. As the pace of inflation has fallen, the cost-of-living adjustment has come down with it, as the Social Security Administration uses state inflation data to calculate the annual change.

Beneficiaries saw the highest increases in four decades in 2023, when the COLA was 8.7%, and in 2022, when benefits increased by 5.9%. However, the annual COLA began to decline in 2024 with an annual adjustment of 3.2%.

“Even though price increases have moderated, it’s not like inflation is over,” said Joe Elsasser, a certified financial planner and president of Covisum, a Social Security claims software company.

If the pace of inflation picks up again, the annual COLA could rise again, he said.

Monthly Medicare Part B premiums are increasing

Retirees enrolled in Medicare Part B — which covers physician services, outpatient hospital services and certain home health services and durable medical equipment — pay monthly premiums.

Medicare Part B premiums are often deducted directly from Social Security checks. Beneficiaries can also request to have Medicare Advantage or Part D premiums deducted from Social Security benefits, according to Mary Johnson, an independent Social Security and Medicare analyst.

By 2025, the standard monthly Part B premium will go up to $185 per month – up $10.30 from $174.70 this year.

At the same time, Medicare Part B beneficiaries will see their annual deductible increase to $257 in 2025 — an increase of $17 from the $240 annual deductible for 2024.

Medicare Part B premiums are based on a beneficiary’s modified adjusted gross income, or MAGI, from two years prior. In 2025, beneficiaries who had less than or equal to $106,000 in MAGI in 2023 will pay the standard monthly Part B premium, as will married couples with less than or equal to $212,000.

However, beneficiaries with higher incomes will be subject to income-related adjustment amounts, or IRMAA, that increase their monthly premium payments.

About 8% of Medicare Part B beneficiaries are affected by these income-related adjustments, according to Centers for Medicare and Medicaid Services.

Income changes may result in higher taxes

Social Security recipients can request to have federal taxes withheld from their benefit payments.

Recipients may want to consider adjusting these withholdings, especially if they expect more of their benefits to be taxable, according to Jim Blair, vice president of Premier Social Security Consulting.

Social benefits are taxed according to a formula called total income — the sum of adjusted gross income, non-taxable interest and half of social security benefits. Recipients may not pay taxes on their benefits if their total income is low enough, or up to 50% or 85% of their benefits may be subject to federal taxes if their total income is above certain thresholds.

“What we’ve seen with clients is sort of an increase in other income that has caused more of their Social Security to be taxed,” said CFP Brian Vosberg, president of Vosberg Wealth Management in Glendora, California.

For example, retirees who have $200,000 in money market accounts or certificates of deposit will see higher interest payments on that amount after the Federal Reserve’s series of rate hikes in recent years. That interest income could require recipients to pay a higher federal tax rate on their benefits, Vosberg said.

Proactive tax planning can help alleviate that situation, Vosberg said. Strategies like buying an annuity that lets that interest grow tax-deferred or reducing income from other areas, such as IRA withdrawals, can help minimize the tax bite, he said.

Retirees should also pay attention to whether their income has changed meaningfully in the past few years, according to Blair. If so, their monthly Medicare Part B premium rate may no longer be accurate. Beneficiaries can notify the Social Security Administration of life-changing events that affect their income and Medicare premiums by filling out a Form SSA-44.