As we enter 2025, several economic, legislative, and societal changes are already in place and poised to impact your finances. Some of these developments offer opportunities for financial growth, while others may present new challenges.
Let’s explore the most significant factors to watch as we start 2025 and see how they could affect your wallet.
1. How the Trump Administration Might Shake Things Up
Presidential politics can have a profound impact on the finances of regular people. However, what parts of their agenda will get pushed through is unknown. And, the policies do not always have the expected results, making it is difficult to predict how an administration will effect pocketbooks.
- Will Trump’s tariffs trigger inflation, strengthen the domestic economy, or both?
- Will low corporate tax rates increase stock prices?
- Will personal tax rates remain low (or go lower) throughout this administration?
- Will Social Security and Medicare continue as they are now?
- Will the Consumer Financial Protection Bureau (CFPB) be dismantled and many pro consumer policies be rolled back?
We don’t really know what will happen and predicting the future can be a game of whac-a-mole.
How to Prepare: Know your personal financial goals and have a flexible and evolving plan for achieving them. The Boldin Planner is your partner as you change and the world evolves.
2. Supersized 401k Retirement Savings
Good news for retirement savers! Starting in 2025, individuals aged 60 to 63 can make higher catch-up contributions to their 401(k) and 403(b) plans). This change, part of the SECURE 2.0 Act, is designed to help older workers close retirement savings gaps.
In 2025, the contribution limit for a 401(k) is $23,500, plus a catch-up contribution of $7,500 for employees aged 50 and older. Employees aged 60–63 can contribute an additional $11,250.
Explanation
- The $23,500 limit is an increase from $23,000 in 2024
- The catch-up contribution limit for employees aged 50 and older remains at $7,500
- The catch-up contribution limit for employees aged 60–63 increases to $11,250
- The total contribution limit for someone 60-63 is $34,750
So, if you are married and both of you are between the ages of 60 and 63, that is an additional $69,500 that could be saved into a tax advantaged account. And, that is even before employer contributions!
How to Benefit: It can be hard to save any amount, let alone almost $35,000 a person. However, making efforts to maximize your contributions if you’re eligible is likely to be worthwhile. Here are ideas for saving more and explore 15 ways many households waste money that could go to savings.
3. Limits to Out of Pocket Prescription Costs for Medicare Recipients
The Inflation Reduction Act’s cap on Medicare Part D out-of-pocket drug costs takes full effect in 2025. Beneficiaries will pay no more than $2,000 annually for prescription drugs, a game-changer for those with high medication expenses.
How to Benefit: Review your current drug costs and plan options during open enrollment. This cap could provide significant savings for Medicare recipients.
4. Higher Earned Income Limits for People Working While Receiving Social Security
If you take Social Security early and continue to work, you can now earn slightly more money before having your benefits reduced. The amount you can earn before your benefits are temporarily reduced is rising modestly to $23,400, up from $22,320 in 2024.
How to Benefit: A reduction of Social Security benefits due to work should not be a disincentive to employment. The reduction in benefits is temporary and once you hit full retirement age, Social Security repays the money that was withheld, adding it back into your monthly check over time.
5. Inherited IRA Rules Tighten
The IRS continues to enforce stricter rules for inherited IRAs, requiring most non-spouse beneficiaries to withdraw all funds within 10 years of inheritance. The exact distribution requirements are confusing and the penalties for missing withdrawals are significant.
How to Adapt: The rules are confusing. However, we have a fix. Use the Boldin Planner to see which rules apply to your inherited IRA and see the impact of distributions on your income, tax liability, and more.
6. Medical Debt Relief Initiatives
A full one-quarter of all Americans owe money for past-due health care bills. And, the CFPB estimates that there is $49 billion on 15 million credit reports.
Recognition of the burden of medical debt has led to legislative efforts to improve financial protections for patients. In 2025, new reporting rules will limit how medical debt affects your credit score, and some states are introducing caps on interest rates for unpaid medical bills.
How to Benefit: Monitor your credit reports and challenge inaccuracies. Explore financial assistance programs or negotiate directly with providers to manage medical bills.
7. Climate-Driven Costs
Climate change continues to influence pocket books, from rising insurance premiums, repairs, increased heating and cooling costs, and more.
How to Adapt: Assess your climate-related risks and stay on top of home insurance costs.
8. The Debt Cieling
This week had big financial headlines – last minute legislation from the Biden Administration and the flurry of new policies that the Trump Administration is enacting. Lost in shuffle is that the total debt owed by the U.S. government overtopped the $36.1 trillion it’s allowed to legally borrow. This sets the stage for a scramble by Congress and the White House to fix it before the U.S. fails to pay its bills and has the potential to set off a financial crisis.
How to Prepare: Learn more about the debt ceiling and how to prepare should the government breach the limit.
9. Economic Indicators
According to the Conference Board’s index of leading economic indicators, the Biden Administration ended their term with a solid economy. There was a slight decrease in December, but the previous six months were better than the previous year.
And, the stock market is thus far signaling good news for the Trump Administration though many economists are wary of the impact of some of his policies.
How to Adapt: Good investing practices suggest that you ignore headlines and save and invest according to your own financial goals.
- Don’t try to tell the future, but stay true to your investing philosophy. (Not sure about your investing philosophy? Build an investment policy statement.)
- Set up contingency plans for different possible futures
- Stay flexible and adjust your plans as life unfolds
