Healthcare is draining Social Security checks, and the pressure is getting worse.
Out-of-pocket expenses for health care in retirement are more than people plan for. Even including Medicare coverage and ignoring long-term care, retirees face substantial out-of-pocket costs for premiums, co-pays and uncovered medical services.
Those bills eat up about a third of the average retiree’s Social Security income and nearly a quarter of their total income, according to a new report from the Center on Retirement at Boston College.
“Retirees are getting it because they’re writing the checks now, but those approaching retirement need to realize that this is coming,” Matthew Rutledge, economist and author of the report, told Yahoo Finance. “It’s a rude awakening for people once they get to retirement.”
For about half of seniors, monthly Social Security benefits provide at least 50% of their income, and for about 1 in 4 seniors, it provides at least 90% of their income. For 27% — 6.4 million seniors — it is their only source of income.
In January, the average monthly estimated Social Security retirement benefit was $2,071, according to data from the Social Security Administration.
For women, those checks tend to be smaller. A woman’s average monthly Social Security check is about a quarter smaller than the average man’s due, in part, to lower pay over years of work, time off the workforce for caregiving, and more part-time work.
The bad news is that health care costs are not going down.
“Going forward, we’re going to see a lot of people’s Social Security checks go toward medical costs,” Rutledge said. “The picture is not going to improve any time soon.”
Even basic health care in early retirement is expensive. “Medicare premiums have grown quite a lot, much faster than inflation in recent years,” Rutledge said.
Medical inflation is projected to increase by more than twice Social Security’s cost-of-living adjustments. ·MoMo Productions via Getty Images
In 2026, for example, the monthly premium rate for Part B is $202.90, an increase of $17.90 from last year. And the annual Part B deductible, which most people must pay before their Medicare coverage begins, rose $26 this year to $283.
In addition, medical inflation is projected to grow at more than double the Social Security cost-of-living adjustment (COLA) rate.
Health-related cost inflation is expected to remain high, with a projected long-term inflation rate of 5.8 percent (based on a 65-year-old couple retiring in 2026 with average health care costs and national averages), according to a new report from data firm HealthView Services. The Social Security COLA is projected to increase by just 2.4%.
Keep in mind that future costs vary from person to person, depending on factors such as your gender, how healthy you are, where you live, and how long you’ll live.
“The cost of health care in retirement comes with sticker shock, mainly because employers typically pick up more than 70 percent of an employee’s health insurance premiums,” Ron Mastrogiovanni, CEO of HealthView Services, told Yahoo Finance. “But when people retire, they are responsible for 100 percent of their health care costs for 20 or more years, increasing at an inflation rate of about 6 percent.”
Your Medicare Advantage plan is not likely to be the panacea. More than half of beneficiaries now opt for Medicare Advantage coverage, but they should also prepare to feel the sting.
These plans have an Achilles heel. “Medicare Advantage seems like a very good deal for people early in retirement because there are often no premiums,” Rutledge said, “but it’s less of a clear advantage as you go along if you start needing a lot of care from providers outside of your plan’s network.”
Carolyn McClanahan, a certified financial planner and physician, agreed.
“Out-of-pocket costs are rising, and while the number of people enrolled in Medicare Advantage plans continues to grow, and costs appear cheaper than traditional Medicare for enrollees, once they get sick and need services, out-of-pocket costs are higher because Medicare Advantage plans typically require pre-authorization and are likely to deny it.
Then things go south. “At that point, a Medicare Advantage consumer is left without the care they want unless they’re willing to pay out of pocket,” she said.
Traditional Medicare, on the other hand, rarely requires prior authorization for healthcare services or drugs.
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Here are some ways to prepare for and manage your out-of-pocket medical expenses in retirement:
Stay on the job a few more years. If possible, work more and stay with employer insurance as long as you can while building up savings.
Create a Health Savings Account (HSA). If you’re retiring soon, maxing out your HSA contributions can be a smart move. An HSA allows you to put money in tax-free, allows that money to accumulate tax-free, and allows it to come out tax-free for qualified healthcare expenses. (Some states assess state taxes.)
Stop applying for Social Security benefits. If you can afford it, delaying access to your benefit until age 70 will provide a bigger monthly check for the rest of your life — useful if you’re facing big health care bills as you age.
Here’s how it works: You can get Social Security as early as age 62, but your benefit can be reduced by up to 30% of what it would have been at full retirement age (FRA). For anyone born in 1960 or later, the full retirement age is 67. If you delay benefits from full retirement age until age 70, you get deferred retirement credits. They add up to about 8% for each year until you reach 70, when the credits stop accruing.
Budget for costs. It’s important to make future health care costs part of your retirement planning budget and include potential unexpected health care costs in your emergency fund, McClanahan said.
“The system is very broken and healthcare is now just a business, she added. The only advice I can give is for people once they retire is to make sure they become engaged patients and question the care they’re getting and what they’re being charged for these services.”
Kerry Hannon is a senior columnist at Yahoo Finance. She is a career and retirement strategist and the author of 14 books, including “Retirement Bites: A Gen X Guide to Securing Your Financial Future,” “In Control at 50+: How to Succeed in the New World of Work,” and “Never too old to get rich.” Follow her further Bluesky and X.
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