2025 Personal Finance Recap for 403(b) Plan Participants
January 10, 2026
By Barbara O'Neill, CFP®, AFC®
In addition to the selection of a vendor and specific investment products, 403(b) plan participants are affected by a variety of financial factors including current events (e.g., stock market performance), government legislation (e.g., tax laws) and policies (e.g., interest rates), and macroeconomic factors such as inflation.
A review of recent financial events and trends is useful to understand these factors and to inform future actions such as 403(b) plan contribution amounts, asset allocation weights, and decisions to buy a car or home.
This post provides a recap of 2025 personal finance events and trends (shown below) and a preview of 2026 changes. It is based on an archived 60-minute webinar that I recently taught for financial professionals. This post concludes with a summary of several 2025 personal finance research studies, three “need to know” facts, and six take-away action steps.
2025 Trends and Events
Inflation
In a word, inflation remained “sticky.” The consumer price index (CPI) was 3.0% in January, decreased for three months to 2.3% in April, and then increased for five months to 3.0% in September. No data were collected in October and reported in November due to the federal government shutdown. In December, the CPI was 2.7%, reflecting the change in prices from November 2024 to November 2025. Doubts were raised about the accuracy of CPI data amidst government staffing shortages.
Interest Rates
The Federal Reserve’s Federal Open Market Committee (FOMC) held the federal funds rate steady in a range between 4.25% to 4.5% from January to July in response to inflation and jobs reports. This was followed by three 0.25% rate cuts in September, October, and December, ending the year in a range from 3.50% to 3.75%. Impacts were felt on lending rates and yields on bank accounts and money market funds.
Credit and Debt
Aggregate outstanding credit card balances increased to an all-time high of $1.23 trillion in Q3, up 6% versus 2024 and a record high over 11% of credit cardholders made minimum payments. In addition, several high profile cryptocurrency companies began offering credit cards with Bitcoin rewards paid via accounts on crypto exchanges. Platinum credit cards raised their annual fees to $795 to $895. The Department of Education resumed collections on defaulted federal student loans, including up to 15% wage garnishment.
Vehicle Purchasing
By second quarter 2025, seven-year car loans were 21.6% of new vehicle financing and six-year loans, the most common loan term, accounted for 36.1% of loans. Also, for the first time ever, the average price of a new vehicle topped $50,000. It was hard to follow the 20/4/10 rule and, not surprisingly, buyers fell behind on payments and repossessions increased. Tariff concerns motivated many people to buy vehicles in early 2025.
Housing
Average mortgage interest rates decreased from over 7% in January to 6.58% in August and 6.2% in November and the average first time home buyer was 40 years old. Home prices hit a record high in June and then started to decrease. More homeowners who bought at pandemic market peaks went underwater and there was increased use of adjustable rate mortgages (ARMs). Energy/utility costs also increased and there was chatter about offering ultra-expensive 50-year mortgages to address housing affordability concerns.
Banking/Saving
High interest rates on savings accounts and money market funds dipped, but did not disappear, as the FOMC lowered interest rates. By year-end, the highest yield online savings accounts paid around a 3.75% return. Also notable in 2025 was increased closure of bank branches as banks reevaluated their need for physical locations in an age of digital banking. The U.S. savings rate hovered in a range between 4.0% and 5.2%.
Investing-Stock
The Dow Jones Industrial Average (DJIA) index was 42,544.22 on 12/31/24 and 48,063.29 on 12/31/25, up 13%. The S&P 500 and Nasdaq indices climbed 16% and 19% respectively. The market reached correction territory in Q1, followed by nine months of gains, particularly when interest rates were lowered. The DJIA’s record high was 48,704.01 on 12/11/25 and Nvidia, Microsoft, and Apple became $4 trillion companies.
Investing-Other Than Stock
The yield on inflation-adjusted I bonds issued between 11/1/25 and 4/30/26 is 4.03%. Bitcoin hit a record high above $126,000 in early October, but saw a significant pullback later in the year, ending 2025 in the $80,000-$90,000 range. By April, 11 Bitcoin exchange-traded funds (ETFs) were available. Gold topped $4,000 per Troy ounce in August amid economic uncertainty. Bond prices increased with interest rate cuts and many investors stayed in cash assets like money market funds despite FOMC interest rate cuts.
Shopping and Spending
The U.S. experienced a “K-shaped” economy where affluent people were spending freely and powering economic growth metrics (e.g., GDP) while low- and moderate-income households felt significant financial stress. The top 10% of earners accounted for almost half of all spending. 2025 also saw increased use of thrift stores and food makers selling lower-priced small package sizes. Gen Z was especially financially squeezed and the phrase “No Buy 2025” trended on TikTok in January.
Insurance
Homeowners insurance became increasingly expensive and insurers pulled back from some disaster-prone regions. Disasters can raise insurance rates even in far-away areas. Health insurers sought big premium increases, which were compounded by uncertainty about the future of Affordable Care Act subsidies. Auto insurance premiums moderated, but continued, partially due to tariffs and increased costs for parts and labor.
Income Taxes
The IRS ended its experimental Direct File program, citing underutilization, and also discontinued purchases of paper I bonds with a tax refund, also due to low utilization. The biggest tax news of 2025, however, was the passage of the mega tax and spending bill dubbed OBBBA, which made the tax rates and tax brackets from the 2017 Tax Cuts and Jobs Act permanent, increased the child tax credit, raised the standard deduction, repealed green energy incentives, and created limited time tax breaks such as no tax on tips and overtime.
Retirement Planning
2025 marked the peak of “Peak 65” with the largest group of Americans (almost 4.2 million) turning age 65 in American history. Peak 65 is a four-year time period (2024-2027) when tail-end baby boomers are reaching traditional retirement age. Almost 1 in 5 (19.5%) people age 65+ were employed. A new slogan, “2.5 (million) by 65,” promoted increased savings beyond the previous $1 million gold standard and more Americans tapped their 401(k)s for emergencies with a record 4.8% “leakage” rate.
Social Security
The Social Security Fairness Act (SSFA) became law in January and repealed the Windfall Elimination Provision and Government Pension Offset which reduced benefits for about 3 million workers with pensions from primary jobs. There were also staff reductions at SS offices impacting customer service, and advice to pull benefit statements with an earnings history amidst data security concerns. The 2025 SS trustees report projected trust fund insolvency in 2033 and a 23% cut in benefits if nothing is done to stabilize the program.
Miscellaneous Finance-Related Events
An executive order allowed access to alternative assets (e.g., private equity, real estate, and cryptocurrency) in 401(k)s, if available. About two-thirds (67%) of Americans reported living paycheck to paycheck and there were numerous reports of economic pessimism and decreased hopes for getting ahead. Another noteworthy event: the last penny was made in November amidst concerns about production costs.
Milestone Financial Anniversaries
2025 saw the 90th anniversary of Social Security (1935), 60th anniversary of Medicare and Medicaid (1965), and 50th anniversary of the earned income tax credit and first index fund offered by Vanguard (1975). Also, the 40th anniversary of the COBRA law and the founding of the CFP board (1985), 20th anniversary of the current BAPCPA bankruptcy law (2005), and 10th anniversary of the rollout of ABLE accounts (2015).
Financial Phrases and Acronyms
Several terms emerged in 2025 related to expense reduction and savings including “subscription hygiene” (reviewing and canceling unnecessary automated payments), “buy less, live more,” and “save small, save often.” Another was “vibecession,” reflecting a disconnect between people feeling like they are in a recession and economic indicators that do not confirm an actual recession.
Government Legislation
Two significant pieces of federal legislation were the previously discussed OBBBA and SSFA. In addition, certain provisions of the 2022 Secure 2.0 Act were implemented including increased catch-up contributions for workers age 60-63 and mandatory auto-enrollment for new 401(k) and 403(b) plans. In addition, the states of Colorado, Delaware, Kentucky, and Texas passed laws requiring a standalone personal finance course for graduation, bringing the total of “guarantee states” to 30.
2026 Changes
The maximum contribution for 403(b) plans will increase to $24,500 and workers age 50+ can contribute an additional $8,000 for a total of $32,500 or an $11,250 “super catch-up” for ages 60-63 for a total of $35,750.
Maximum IRA contributions for 2026 are $7,500 for all workers and $8,600 for those age 50+.
Other tax changes in 2026 are annual inflation indexing for ranges of income in the current seven income tax brackets, the standard deduction, and more. To earn a quarter of coverage for Social Security benefits requires at least $1,890 of income in a three-month period. 403(b) plan participants who already receive Social Security received a 2.8% cost-of living adjustment (COLA).
2025 Research Studies
An annual Northwestern Mutual study found that Americans’ “magic number” to retire comfortably in 2025 was $1.26M (vs. $1.46 M in 2024), the decrease likely due to decreased inflation and adjusted expectations. Among Americans with retirement savings, 25% say they have a year or less of their current annual income saved and 52% of Gen Xers (age 45-60 in 2025) have three times their income or less saved. Big disconnect!
Another 2025 study by Ameriprise found a majority of parents are financially helping their adult children: more than three-quarters for large, onetime expenses and 63% helping with everyday expenses. Over a third (36%) of the sample worried that “child subsidy” expenses may affect their own financial goals.
A third study at George Mason University investigated the best way to take required minimum distributions: 1. lump sum at year-end, 2. equal installments of 1/12 per month, or 3. a hybrid of both strategies. For most risk-averse investors, equal installments are best followed by hybrid and lump sum. For people with high-risk tolerance, lump sum is best. Taking money at frequent intervals smooths out investment volatility.
Three (More) Things
- There was a notable affordability crisis affecting housing, vehicles, utilities, insurance, food, and more.
- The National Financial Capability Study found a decline in the ability of U.S. adults to make ends meet.
- New research by the “4% Rule” creator increased the safe withdrawal percentage to 4.7% of assets in the first year of retirement.
Six Smart Strategies
No. 1: Save More Money — Save more than you did in 2025. Take advantage of the increased contribution limits for IRAs and 403(b)s.
No. 2: Join the Party — Celebrate America’s 250th birthday! Save $250 per month and you’ll have $3,000 at year’s end, plus interest.
No. 3: Track Savings Yields — Review the annual percentage yield (APY) on cash assets if the FOMC lowers or raises interest rates in 2026.
No. 4: Ladder CDs (or Bonds) — Hedge the uncertainty about future APYs with a collection of CDs with different APYs and maturity dates.
No. 5: Practice Frugality — Offset inflation on essential expenses (e.g., rent) with cuts to variable expenses and frugal shopping methods.
No. 6: Learn More — Download the slides from my recent webinar, What’s New in Personal Finance: A 2025 Annual Review.
In Summary
The beginning of a new year is a good time to take stock of your life, including personal finances. Consider the 2025 trends that affected you personally and focus your efforts on addressing them during 2026.
This post provides general personal finance information and does not address all the variables that apply to an individual’s unique situation. It should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.
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Dr. O'Neill is the owner/CEO of Money Talk: Financial Planning Seminars and Publications where she writes, speaks, and reviews content about personal finance. She is a Distinguished Professor Emeritus at Rutgers University and a long-time 403(b) plan participant.