The desk interprets UBS's latest retirement guide as a critical touchpoint for understanding future financial planning dynamics. With updates in Medicare premiums projected to rise by 5.9% and a Social Security cost of living adjustment at 2.5%, the upcoming fiscal landscape presents both opportunities and challenges for those nearing retirement. Per the full note source, these adjustments signal a changing paradigm in personal finance management that could impact spending behaviors and investment strategies. Given the economic backdrop, institutional traders should stay attuned to how these shifts may influence currency valuations and broader market sentiment in the near term.
What the desk is arguing
The rising costs associated with Medicare and Social Security adjustments could reshape retirement planning significantly. This is particularly relevant for traders, as higher premiums and modest adjustments in benefits may affect consumer spending patterns. Per the full note source, the expected increase in Medicare Part B premiums highlights the financial considerations that retirees will confront in managing their budgets, thus impacting economic data moving forward.
Moreover, the projected 2.5% increase in Social Security benefits may not be sufficient to counterbalance the rising costs associated with healthcare and other living expenses. As Ainsley Carbone from UBS mentioned, wealth management strategies for retirees will likely need to evolve to cope with these economic realities.
Where it sits in our coverage
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How other firms see it
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What the calendar says
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01Medicare Part B premiums increase to $185, a 5.9% rise.
02Social Security benefits will see a 2.5% cost-of-living adjustment in 2025.
03These adjustments reflect a broader shift in the financial landscape for retirees.
04Market implications may include changing consumer spending behaviors impacting economic data.
Market implications
Monitor the impact of rising healthcare costs on economic indicators—an aspect traders should integrate into their currency forecasts. As consumer spending evolves, anticipate volatility in related sectors, particularly those linked to healthcare and retirement planning.
Risks to this view
Should there be an unexpected policy shift or significant economic stimulus from central banks that alleviates these cost pressures, this could reverse the anticipated financial burdens on retirees and alter consumption patterns.
ubs
Hi everyone, Dan Cassidy here. Welcome back to Top of the Morning on the UBS Conversations podcast channel. Our conversation today, we'll spend time spotlighting the 2025 Retirement Guide from the UBS Chief Investment Office.
We will spend some time reviewing what those currently in or preparing for retirement should know for the new year. With that, joining me for the conversation today, glad to welcome back Ainsley Carbone, Retirement Strategist, as well as Justin Waring, Senior Total Wealth Strategist, both from the UBS Chief Investment Office. With that, Ainsley, Justin, Happy New Year to you both.
Welcome back and thank you for spending some time today with our listeners and our clients. Happy New Year. Thanks for having us.
Happy New Year. With that, I know within the guide, there is a lot to talk about. To begin, Ainsley, I'll simply ask, what's new this year for retirees to be aware of?
Yeah, there's certainly a lot of updates, but I'd say the most common questions I get this time of year are around what's new as it relates to Medicare and Social Security. So for Medicare, there have been some costs that have increased as there are most years. So for instance, the standard monthly premium for Medicare Part B is increasing to $185 per person, which is up from $174.70 per person in 2024.
So this is an increase of about 5.9%. But if you're a higher income household, you may also be subject to income-related monthly adjustment amounts. We also call them IRMAs, I-R-M-A-A.
This is essentially an income surcharge that's due in addition to your Part B premiums. And so these income-related surcharges have also increased 5.9%. Another update is that there is a cost of living adjustment for Social Security benefits this year.
So the cost of living adjustment is 2.5%. So for anyone who's receiving Social Security retirement benefits, your benefits will increase 2.5% in January. But it's really important to note that if you are someone who has their Medicare Part B premiums withheld directly from their Social Security payments, then you likely are not going to see an increase in your net Social Security payment that is equal to 2.5%.
This is because, like I said before, the Medicare Part B premium that's being deducted from your Social Security payment, well, that has increased 5.9%. So since the 5.9% increase in the Part B premium will eat into that 2.5% increase in your Social Security benefit, you're not going to see that net increase as much as the 2.5%. And so those with higher incomes who are also subject to that income-related surcharge for those Part B premiums, they're going to be seeing even less of a net increase to their Social Security benefit.
So in order to really understand the full extent of the COLA and really any increases to other retirement income that you may have, it's important to make sure that you're reviewing how all of your income has adjusted relative to all of your expenses. This will just give you a better idea of any changes in your spending power from one year to the next, which ultimately is just going to make it easier for you to be prepared for all of your spending plans for the year ahead. Okay, so a lot there to be mindful of.
Thank you, Ainsley, for that overview. Justin, to welcome you into the conversation, what about those who are still saving for retirement? Is there anything new that they should be aware of?
Yeah, so I mean, among the changes this year to retirement planning, there are obviously some inflation-related increases to contribution limits. For example, if you're contributing to a health savings account, you and your family can contribute up to $85.50 now. Now, remember, health savings account contributions are triple tax-free, so no tax on the income that you're using to contribute to the account, no tax on income growth inside the account, and as long as you use the funds for qualified medical expenses, no tax on the distribution as well.
So it's a high priority if you do have access to a high-deductible health care plan. You do have the ability to invest in a health savings account and let that money grow tax-free into retirement. So if you're a family plan, it's $8,550.
For 2025, if you're just saving for yourself, it's $4,300. In addition, the 401k maximum deductible contribution has gone up to $23,500. Now, that's how much you can put in in traditional or raw 401k.
In addition to that, you and your employer together can put a total of $70,000 into your 401k every year, and the difference between those two numbers is either what the employer puts in, or you can also make after-tax contributions to your 401k up to that $70,000 limit. This is how many people do mega backdoor Roth conversions, where they make an after-tax contribution to their 401k up to that $70,000 limit between them and their employer, and then they immediately convert it to Roth as long as their plan allows them to do an in-service distribution like that. And then also, if you're contributing to an IRA, the contributions this year are $7,000.
And in addition to all of these normal contribution limits, there are also some catch-up contributions. So for the health savings account, if you're over the age of 55, you can add an additional $1,000 a year. And if you're contributing to a 401k and you're over the age of 50, then you can contribute an additional $7,500.
Now there's a new catch-up contribution for a 401k that applies if you're between the ages of 60 and 63. In that case, you can contribute an additional $11,250 instead of the $7,500. So it's 150% of the benefit you get between the ages of 59, or if you're over the age of 64.
It's kind of funny, they added this sort of donut super catch-up contribution this year for people between the ages of 60 to 63. And then last but not least, if you're contributing to an IRA and you're over the age of 50, you can also make a catch-up contribution of $1,000 additional. So that would be $8,000 total, $7,000 plus $1,000 for the catch-up contribution.
Justin, thank you for citing those considerations for those who are still saving for retirement. And then Ainsley, for those who may be retiring this year in 2025, what should they be thinking about? Yeah, well, so for those who may be retiring this year, we're definitely hoping that you've already gone through the process of making sure that you can afford to retire.
So assuming you're someone who's already decided that they can afford to retire this year, and you're planning to actually retire this year, within the report we lay out three considerations for you. So the first one would be to build your liquidity strategy, or at least revisit your liquidity strategy. So you'll want to make sure that your liquidity strategy is funded and structured so that it can meet your near-term spending needs for the next three to five years.
By helping you fund your spending needs from resources that prioritize capital preservation within this liquidity strategy, it can help to make sure that you're avoiding locking in otherwise temporary losses in the rest of your portfolio. And this will just help you to support your spending regardless of what's going on in the market. So before you retire, to make sure that your liquidity strategy is set up and ready to go, think through your near-term spending plans.
Try to consider how your spending habits have changed in recent years and how they may change in the next few years. This will help you to make sure that your liquidity strategy is going to reflect those spending plans that you have to withdraw from your portfolio in the near-term. The second consideration for you is to really think about the type of tax treatments that you have your wealth saved in.
Oftentimes people get to retirement not thinking through this when all of a sudden they need to start pulling from their portfolio to fund their spending. Well, if they have the bulk of their wealth saved in tax-deferred accounts like a traditional IRA or a traditional 401k, well, these portfolio withdrawals are going to create taxable events and typically people are not too excited about those taxable events. So now is the time to think through tax-efficient ways to pull from your various accounts that you have access to in retirement.
And it may even be a good time to think about making strategic distributions that can help you to enhance your tax diversification and can help you spread your taxable income out over time like partial Roth conversions. So since we're in a new tax year, it means that there are different tax brackets. So you just want to make sure your strategic distributions are, if you're already making them or if you plan to make them, you just want to adjust them to make sure you're accounting for these different, these adjusted income brackets.
And then lastly, it's important to make sure that you're accounting for healthcare in long-term care costs. So this is certainly something that you'll want to do before you've determined that you can afford to retire. But again, since it's a new year, there are typically new costs associated with different plans.
So it's just a good idea to take the time now to update your plan to reflect the new and likely higher costs associated with healthcare and any potential long-term care costs. Well thank you Ainsley for hitting on those points for those preparing to retire here in 2025. Now with the new year, we'll bring a new administration in the White House, Justin Ainsley mentioned that higher income taxes aren't as much of a concern under the incoming Trump administration, yet there's still action that should be taken to manage retirees income tax burden.
Is the same true for managing estate taxes? What should retirees be thinking about when it comes to estate planning and the future of estate tax policy? It's interesting.
The 2017 Tax Cuts and Jobs Act significantly increased the lifetime gift and estate tax exemption. So that's the amount you can give away either during your lifetime or at death without being subject to the federal estate tax of 40%. That is set to sunset at the end of the year if Congress doesn't act.
Now we do think that with Republicans in control of the House and the Senate, as well as the White House, there's a good chance they'll be able to extend the Tax Cuts and Jobs Act provisions, most of which affect personal income taxes, but there's also this estate tax impact. We do think that they'll be able to extend it, but given them the very slim majority in the House, it's not a given. It's going to take them some time to work out an arrangement among themselves.
There's a spectrum of opinion among Republicans on how to deal with the deficit and the debt, and this is a significant cost to extend these tax cuts as they are. In addition, the Republicans do not have 60 seats in the Senate, and so anything that they do needs to be debt neutral over the course of a 10-year window. So just like we're approaching a sunset for the 2017 tax cuts in the coming year, we're also going to have a sunset provision in order to help keep this neutral, and so there may need to be compromises.
So all of that background being considered, this year a family can give up to $27.98 million for a married couple filing jointly to their heirs during their lifetime or at death without being subject to the estate tax. We expect that to be at least halved if and when the Tax Cuts and Jobs Act eventually sunsets, whether that's next year or at some point in the future. And so we really do recommend taking use of that lifetime provision to get money outside of your estate.
The sooner you can get it outside of your estate, make it a completed gift, the sooner the money can grow outside of your estate, and therefore the more you can gift on an after-tax basis to your family if you are subject to that level, if you have that level of wealth or expect to have that level of wealth. In addition, you can, without even tapping into that lifetime exclusion, you and your partner can each give up to $19,000 per recipient, subject to an exclusion of the gift tax. So this $38,000 as a married couple you can give to each person in your family without even tapping into your lifetime exemption.
And so we do recommend lifetime gifting. It's not only effective from a tax perspective, but it also is going to help you see the benefit that those gifts will have on your family members during your lifetime. And so even though it doesn't look like the estate tax exemption is going to sunset at the end of this year, as was previously the status quo, we still recommend using your lifetime exemption in order to maximize the after-tax benefit you can give to your family.
Well, Justin, thank you for that guidance when it comes to estate planning considerations for 2025. So at this point, Ainsley, Justin, you've covered a lot for our listeners, our clients, and of course encourage our listeners to take a look at the 2025 Retirement Guide to read further into these topics. Though Ainsley, before we close out, any final thoughts, takeaways you would like to leave our listeners with?
Yeah, I just wanted to mention that at the beginning of each year, we typically update a few of our more popular pieces, just again, because it's a new calendar year, it's a new tax year. And so we like to update some of our pieces to reflect the new tax rates. So we'll have a few new pieces out this week, including the report, like I said, we've been discussing today, the Retirement Guide.
We've also updated our tax fact sheet, which includes key tax information for 2025, as well as our savings waterfall worksheet, which will include the 2025 Retirement Plan contribution limits. And we will also have our Retirement Guidebook updated, which is a slide deck that includes all of the insights from our Modern Retirement Monthly Series. And so within that guidebook, we do also link away to all of our relevant content.
So if you're looking for some of our latest pieces, I suggest visiting ubs.com slash retirement guidebook, again, ubs.com slash retirement guidebook, and you'll be able to find that information there. Well, Ainsley, just in very productive conversation, thank you for spending some time today with our listeners, our clients to spotlight the 2025 Retirement Guide. And thank you for highlighting those resources.
We do look forward to follow up conversations as we make our way through 2025. Thank you for joining us. Thank you.
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