7 Retirement Must-Knows for 2025 (2025)

Key Takeaways

• If you contribute to a company retirement plan, whether a 401(k), 403(b), or 457, we are seeing a little bit of a boost in the contribution limits to $23,500 if you are under age 50 and up to $31,000 if you’re over age 50.
• For people who are already in retirement and who are actively spending from those portfolios, we found that a 3.7% safe withdrawal rate was our base case.
• Social Security recipients will get an inflation adjustment of 2.5%, which is down a little bit from what people received in 2024.
• We’ve gradually seen that the full retirement age, which is the age when you can claim 100% of your promised Social Security benefit, has been gradually moving up over the past several years. It will eventually settle at age 67 for people born in 1960 or thereafter.
• With the repeal of the windfall elimination provision, people who are receiving pensions and also receiving Social Security will get an adjustment that should boost their Social Security benefits.
• For inherited IRAs, it’s a little less advantageous for people other than your spouse and other than certain types of beneficiaries to inherit IRA assets from you. If you have charitable intentions, it’s a little bit more attractive to give those traditional IRAs to charity versus human beneficiaries who will have to spend through them and pay taxes on those inherited IRA assets within a 10-year period.

Susan Dziubinski: Hi, I’m Susan Dziubinski with Morningstar. What should those saving for retirement and those already there have on their radars for 2025? Joining me to discuss that topic is Christine Benz. Christine is Morningstar’s director of personal finance and retirement planning, host of The Long View podcast, and author of the bestselling book, How to Retire: 20 Lessons for a Happy, Successful, and Wealthy Retirement. Nice to see you, Christine.

Christine Benz: Good to see you too, Susan.

Why Investors Can Add More to Their Retirement Accounts

Dziubinski: Christine, let’s start by talking about people who are still working and saving for retirement. They can put a little bit more in those retirement accounts this year, is that right?

Benz: That’s right. So, the IRA contribution limit is staying the same as in 2024 at $7,000 if you are under age 50, $8,000 if you’re 50 and over. If you contribute to a company retirement plan, whether 401(k), 403(b), 457, that’s where we are seeing a little bit of a boost in the contribution limits to $23,500 if you are under age 50 and up to $31,000 if you’re over age 50. So that’s an opportunity to stash a little bit more away. If you are a super saver, if you’re in a position to max out those company retirement plans or your IRA, go for it because you do have a little bit more leeway to put more money in.

Higher Contribution Limits for Company Retirement Plans

Dziubinski: People getting close to retirement actually have sort of a new opportunity, speaking of super savers, when it comes to their company retirement plans. Tell us about that.

Benz: This is a new one starting in 2025. It’s part of Secure 2.0, that retirement legislation that passed a few years ago. This is an opportunity for people who are between age 60 and 63 this year and thereafter to make an additional 401(k) contribution above and beyond that $31,000 that I just referenced. So, if you are in that age band, you get to put inasmuch as $34,750 starting in 2025. It’s a good opportunity if you’re playing catch up with your retirement plan contributions to take advantage of that. Our colleague Amy Arnott recently did some research where she looked at the payoff for those retirement plan contributions late in life. They can be really well worth it for people who feel like they’re playing a little bit of catch-up on their retirement plans.

Retirement Portfolio Safe Withdrawal Rate 2025

Dziubinski: That sounds great. Let’s shift gears and talk about people who are already in retirement and who are actively spending from those portfolios. You referenced Amy Arnott and Jason Kephart recently wrapped up your retirement income research and based on current market conditions, you came up with what safe withdrawal rates would be. Tell us what that looks like this year.

Benz: Well, it was kind of a dispiriting number, the headline number, a 3.7% safe withdrawal rate was our base case. And there we’re assuming that someone’s kind of looking for a static real paycheck in retirement. Most people don’t actually spend that way. But our assumption was that if someone has a 30-year time horizon, wants a 90% probability of not running out of money over that 30-year horizon, and employs the fairly low return expectations that we embedded in our forecast, you want to be prepared to tap on the brakes with respect to your portfolio withdrawals. We also had a lot in the research paper that talks about how you can lift that safe withdrawal amount because I think most people don’t want to cheat themselves of good experiences in retirement. We have some ideas in the paper about how to use flexible portfolio withdrawals, and how to marry them with nonportfolio income sources like Social Security and potentially annuities. So there are some ideas there because we know that 3.7% ...

Dziubinski: Doesn’t sound so great, Christine.

Benz: ... $37,000 on a $1 million portfolio seems kind of like a downer. So we have some ideas about how people can potentially lift that.

Dziubinski: Someone who’s already retired, how can they go about using this research that you all have done?

Benz: This is an important point, Susan, because people who are already in retirement may want to check up on how much they’re spending. And I think the paper can come in handy there. I mentioned that 30-year horizon. If you have a shorter horizon, say you’re someone who is 75 and maybe you’re planning for a 20-year horizon, well you can look at the numbers that we have drawn up for people with shorter horizons. What you see is you get a nice lift in terms of how much is a reasonable withdrawal percentage. Alternatively, you could look at the required minimum distribution tables to get kind of another check on how much you could reasonably spend. Those are based on life expectancies, and they give you a nice buffer to account for the fact that you might have a surviving spouse. Those RMD calculations are fairly conservative in terms of not encouraging you to overspend.

Changes to Social Security in 2025

Dziubinski: There are also some changes to Social Security in 2025, and there are actually three new developments specifically that you think people should be keeping in mind. What are they?

Benz: One is that Social Security recipients will get an inflation adjustment of 2.5% down a little bit from what people received in 2024. The nice thing about that inflation adjustment is that even if you’re not someone who’s currently receiving Social Security benefits, say you’re delaying Social Security in order to enlarge your eventual benefit, you still get those Social Security inflation adjustments that get passed along. They still are embedded in your eventual benefit. So, that’s something to know about. Another thing to know about Social Security is that we’ve gradually seen that full retirement age, which is the age when you can claim 100% of your promised benefit. That’s been gradually moving up over the past couple of years, past several years really. It will eventually settle at age 67 for people born in 1960 or thereafter. So that’s another new development.

And finally, a biggie for people who have certain types of pensions, especially government workers who have pensions. In the past, they had been affected by what was called the windfall elimination provision, which essentially reduced their Social Security benefits because they were entitled to these pensions. Well, thanks to the passage of this repeal of the windfall elimination provision, people who are receiving pensions and also receiving Social Security will get an adjustment that should boost their Social Security benefits. So, that’s good news for people like policemen, firefighters, and teachers who have both pensions as well as Social Security earned from their work in the private sector.

Dziubinski: Getting a little raise there.

Benz: Yes.

New Rules for Inherited IRAs

Dziubinski: That’s good. There is also some news regarding IRAs and what happens when you inherit them walk us through that.

Benz: This has been something that’s been gradually kind of phasing in also part of Secure 2.0. So this affects inherited IRAs and the basic news there is that it’s a little less advantageous for people other than your spouse and other than certain types of beneficiaries to inherit IRA assets from you. They’ll have to spend through them within 10 years. So this is a spot for people who have not revisited their estate plans for a while to get some advice about how to handle their IRA beneficiaries. Ultimately, who you want to inherit your IRA is probably who you want to inherit your IRA regardless of what’s going on with taxes. But generally speaking, if you have charitable intentions, this makes it a little bit more attractive to give those traditional IRAs to charity versus human beneficiaries who will have to spend through them and pay taxes on those inherited IRA assets within that 10-year period.

Dziubinski: Got it. Well, thank you for your time, Christine. Today looks like there are some important retirement changes we need to know about. Thank you.

Benz: Thank you so much, Susan.

Dziubinski: I’m Susan Dziubinski with Morningstar. Thanks for tuning in.

Watch 5 Mistakes to Avoid With Your Investment Portfolio in 2025 for more from Christine Benz.