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Key Changes to Social Security, Medicare, and Taxes Ahead!
Significant changes to Social Security, Medicare and taxes are set to take effect in 2025 and as the presidential election approaches, it’s crucial for retirees to grasp these developments and how each candidate's proposals may impact these vital programs and their overall retirement strategies. This article delves into the forthcoming changes, examines the policy implications from each candidates’ proposals and statements, and considers how these shifts could influence beneficiaries' financial security and future planning.
Social Security Changes in 2025
The Social Security Administration has announced that beginning in January, Social Security beneficiaries will receive a 2.5% cost-of-living adjustment (COLA), increasing their monthly payments by approximately $50.
Additionally, the maximum taxable earnings will increase to $176,100 from $168,600, which will particularly affect higher-income individuals.
The long-term sustainability of Social Security funding remains a pressing concern as the Social Security trust funds that finance benefits are projected to become insolvent by 2035. This is one year later than the previous estimate provided by the Social Security Board of Trustees. The next administration’s approach could significantly impact the program's stability.
Where the candidates stand:
Kamala Harris: Harris advocates for expanding Social Security benefits, particularly for middle- and lower-income earners. She aims to finance these expansions by increasing taxes on wealthier Americans, arguing this will enhance the program's long-term sustainability. Her platform emphasizes the importance of protecting Social Security as a crucial safety net for vulnerable populations.
Donald Trump: Trump has pledged to protect existing Social Security benefits, asserting that he will not raise the retirement age or cut funding. He has also said he supports eliminating taxes on Social Security income; however, experts warn that this could jeopardize the program's long-term viability. His approach focuses on preserving benefits for current and future retirees.
Important Medicare Updates in 2025
Thanks to the Biden Administration’s Inflation Reduction Act, one of the most significant changes to Medicare will be the introduction of a $2,000 cap on out-of-pocket costs for prescription drugs under Medicare Part D, potentially saving beneficiaries up to $1,300 annually. This change applies only to covered prescriptions under Medicare.
Furthermore, an optional payment plan will take effect, allowing beneficiaries to distribute their drug costs over several months, easing the financial burden.
As a result of these changes, there is an expectation that some insurers may increase Medicare Advantage plans (MAPDs) premiums and copays. It’s important to review your plan during the open enrollment period to determine if your current plan is still the best fit for you. For example, be on the lookout for changes to your Medicare Advantage plans, including costs and coverage changes for your doctor or other providers. Also make sure any medications you take today are still covered and determine if the drug’s tier (and your costs) have changed. The open enrollment period starts Oct. 15 and ends on Dec. 7, 2024.
Where the candidates stand:
Donald Trump: Agenda47, Trump's 2024 policy platform, highlights the need to control healthcare and prescription drug costs through transparency and competition while protecting Medicare from rising costs. Trump has pledged not to cut Medicare but has previously proposed budget reductions that some believe could impact the program. While Harris has criticized Trump’s stance, claiming he plans to cut Medicare, these claims have been rated as mostly false. However, Trump's platform does lack specific details on how he would approach Medicare reforms.
Kamala Harris: Over the years, Harris has shifted her position on Medicare for All. In 2019, she supported a version of the plan that included a 10-year phase-in period, keeping private insurance and funding the program through Wall Street tax hikes. However, due to opposition from labor leaders and concerns over middle-class taxes, she eventually withdrew support. More recently, Harris aligned with Biden’s push to expand the Affordable Care Act. While her 2024 platform remains somewhat vague, she has recently proposed Medicare covering in-home healthcare for seniors, funded by drug price negotiations, and supports extending coverage to dental, vision, and hearing services.
2025 Tax Policy Changes
The expiration of the 2017 Tax Cuts and Jobs Act (TCJA) at the end of 2025 is a major focus in the election, as tax rates will revert to pre-2017 levels unless Congress intervenes. Current 2024 estate tax laws allow individuals to gift up to $13.61 million tax-free, or $27.22 million per couple. If the TCJA sunsets, this exemption will drop to around $7 million per person in 2025, with amounts exceeding the limit taxed at up to 40%, not including potential state-level inheritance taxes. This change is expected to trigger increased estate planning activity, as individuals with substantial assets may seek to utilize gifting strategies before the exemption reduction.
Where the candidates stand:
Kamala Harris: Harris proposes raising the top income tax rate from 37% to 39.6% for high-income earners and introducing a 25% minimum tax on households with more than $100 million in assets. She also plans to raise long-term capital gains taxes to 28% for those earning over $1 million, potentially adding a 5% net investment income tax, bringing the total to 33%. Harris has floated the idea of eliminating the step-up in basis for inherited assets, taxing unrealized capital gains, and ending back-door Roth conversions.
Donald Trump: Trump aims to extend the TCJA, maintaining the current top income tax rate of 37%, the higher standard deduction, and a 20% top capital gains tax rate. He also proposes lowering corporate taxes, lifting the $10,000 cap on state and local tax deductions, and eliminating taxes on Social Security. Additionally, Trump supports a 10% tariff on all imports, a proposal that some experts warn could affect economic growth and increase the national debt.
Both candidates' tax policies emphasize the need for strategic tax planning, particularly for retirees who can adjust withdrawals from retirement accounts to manage their taxable income. As tax policies evolve, understanding how future changes may impact your retirement strategy is essential.
Key Takeaways
The upcoming changes to Social Security and Medicare in 2025 reflect ongoing efforts to manage costs and ensure program viability for future generations. The outcome of the presidential election will likely bring about significant policy shifts, with Trump favoring tax cuts and deregulation, while Harris aims for increased taxes on the wealthy to fund social benefits. Ultimately, the efficacy of any proposed changes will depend on congressional support.
It's crucial to remain cautious about making decisions based solely on political rhetoric. Tax policy shifts can have profound implications for your finances, and strategies like Roth conversions, gifting, and charitable donations may be wise to consider before any legislative changes take effect. To discuss your options and receive personalized advice, reach out to our team at Aspire Planning Associates at (925) 938-2023 to schedule a consultation today!
