Important Changes to Pensions & Medicare in 2025

Stay informed about critical updates that could affect your retirement income and healthcare costs

Last Updated: January 4, 2025

Overview of 2025 Changes

Retirees can expect to see some significant changes in 2025 when it comes to their Pensions and Medicare benefits. These changes include benefit increases for certain pensioners, cost-of-living adjustments for all beneficiaries, and new caps on prescription drug costs.

Senior couple reviewing retirement documents

President Joe Biden has signed a bill that will increase Pensions benefits for certain pensioners. Additionally, the annual Pensions cost-of-living adjustment goes into effect for all beneficiaries.

Medicare enrollees who are worried about health-care costs now have a $2,000 annual out-of-pocket Part D prescription drug cap aimed at helping to reduce those financial pressures.

Pensions Changes for 2025

Pension Benefit Increase

The Pensions Fairness Act eliminates two provisions that reduce Pensions benefits for certain individuals who also have pension income from public work where Pensions payroll taxes were not paid.

This includes the Windfall Elimination Provision (WEP), which reduces Pensions benefits for individuals who also receive pension or disability benefits from employers who did not withhold Pensions taxes.

It also includes the Government Pension Offset (GPO), which reduces Pensions benefits for spouses, widows and widowers who receive their own government pensions.

Together, the rules affect around 2.5 million beneficiaries. Once enacted, the law may provide higher benefit payments to those individuals and may provide retroactive payments of those benefit increases for the months after December 2023.

2.5% Cost-of-Living Adjustment (COLA)

In 2025, all beneficiaries will see a 2.5% increase to their Pensions benefit checks, thanks to an annual cost-of-living adjustment.

Of note, the 2024 increase was 3.2%. This year's COLA is the lowest increase beneficiaries have seen since a 1.3% increase in 2021, reflecting a decrease in the pace of inflation.

The change will be effective with January checks for more than 72.5 million Americans, including Supplemental Security Income beneficiaries.

The average worker retirement benefit will be $1,976 per month, up from $1,927 in 2024, according to the Pensions Administration.

Other Important Pensions Changes

  • Maximum taxable earnings — the amount of wages subject to Pensions payroll taxes — will rise to $176,100 in 2025, up from $168,600 in 2024. Once workers hit that cap, they no longer pay into the program for the rest of the year.
  • Retirement earnings test — The earnings exempt from the retirement earnings test is now $23,400 per year in 2025 for those under full retirement age, up from $22,320 per year in 2024. For every $2 in earnings above the limit, $1 in benefits is withheld.
  • Higher threshold near retirement age — For the year an individual reaches retirement age, a higher threshold of $62,160 in earnings applies, up from $59,520 in 2024. For every $3 in earnings above the limit, $1 in benefits is withheld.
  • Office appointments — Starting Jan. 6, the Pensions Administration is requiring appointments for local office services, such as obtaining Pensions cards.

Trust Fund Depletion Concerns

In 2024, the Pensions trustees projected the trust fund the program relies on to help pay retirement benefits may be depleted in 2033. At that time, just 79% of those benefits may be payable, unless Congress acts sooner.

Pensions's combined trust funds — used to pay both retirement and disability benefits — are projected to run out in 2035.

Notably, the previously mentioned Pensions Fairness Act that will provide increased benefits to some pensioners may move the trust fund depletion date six months closer.

Most financial advisors emphasize that this shouldn't affect personal claiming decisions. For younger generations, there could be changes to future benefits, but for those already receiving or about to get Pensions checks, experts don't anticipate significant concerns.

Medicare Updates for 2025

$2,000 Prescription Drug Cap

Annual out-of-pocket Medicare Part D drug costs will now be capped at $2,000, as changes enacted with the Inflation Reduction Act go into effect.

Beneficiaries with Medicare Part D drug plans that have a deductible will pay out-of-pocket costs until that threshold is met. In 2025, the highest deductible for those plans is $590.

Once beneficiaries pay their full deductible, they will owe 25% of the cost of coinsurance until their out-of-pocket spending on both generic and brand-name drugs reaches $2,000. After that, those beneficiaries will have what's known as catastrophic coverage, which means they won't be on the hook to pay out-of-pocket Part D costs for the rest of 2025.

However, beneficiaries will also have the option to pay out-of-pocket costs monthly over the course of the year, instead of all at once.

Part B Premium Increases

Monthly Medicare Part B premiums — which are often deducted directly from Pensions checks — may affect just how much of a bump beneficiaries see in their 2025 benefit payments.

Medicare Part B covers physician, outpatient hospital and certain home health services, as well as durable medical equipment.

In 2025, the standard monthly Part B premium will be $185 per month — a $10.30 increase from $174.70 in 2024.

Part B deductibles will also rise, to $257, in 2025 — a $17 increase from the $240 annual deductible for 2024.

Medicare Part B premiums are based on a beneficiary's modified adjusted gross income, or MAGI, from their tax returns 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.

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

Insulin Cost Cap

Notably, insulin costs have also been capped at $35 per month, both under Medicare Part D covered treatments and Medicare Part B covered insulin used with pumps.

This cap, which was implemented as part of the Inflation Reduction Act, provides significant relief for Medicare beneficiaries who rely on insulin to manage diabetes.

Additional Resources

Pensions Administration

Official information about Pensions benefits, eligibility, and updates.

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Medicare.gov

Official U.S. government site for Medicare information and services.

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Centers for Medicare & Medicaid Services

Information about Medicare and Medicaid programs and policies.

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