Healthcare is draining Social Security checks, and the squeeze is getting worse.
Out-of-pocket healthcare spending in retirement is mountains more than people plan for. Even including Medicare coverage and ignoring long-term care, retirees face sizable out-of-pocket costs for premiums, copays, and uncovered medical services.
These bills eat up roughly a third of a typical retiree’s Social Security income and almost a quarter of total income, according to a new report from the Center for Retirement at Boston College.
“Retirees get this because they’re writing the checks now, but those nearing retirement need to realize that this is coming up,” Matthew Rutledge, an economist and the report’s author, 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 income. For 27% — 6.4 million seniors — it’s their only source of income.
In January, the estimated average monthly Social Security retirement benefit was $2,071, according to Social Security Administration data.
For women, those checks tend to be smaller. The average woman’s monthly Social Security check is roughly one-quarter less than the average man’s due in part to lower pay over their working years, time out of the workforce for caregiving, and more part-time work.
The bad news is that healthcare costs aren’t subsiding.
“Moving forward, we’re going to see really big portions of people’s Social Security checks going toward medical costs,” Rutledge said.“The picture isn’t going to get any better anytime soon.”
Even basic medical care early in retirement is expensive. “Medicare premiums have risen quite high, much faster than inflation over the last few years,” Rutledge said.
Medical inflation is projected to climb at more than double the rate of Social Security cost-of-living adjustments. · MoMo Productions via Getty Images
In 2026, for example, the monthly Part B premium rate 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 by $26 this year, to $283.
What’s more, medical inflation is projected to climb at more than double the rate of Social Security cost-of-living adjustments (COLAs).
Health-related cost inflation is expected to remain high with a projected long-term inflation rate of 5.8% (based on a 65-year-old couple retiring in 2026, with average health and national average costs), according to a new report from data firm HealthView Services. Social Security COLAs are projected to rise by only 2.4%.
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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 many years you will live.
“The cost of healthcare in retirement comes with sticker shock mainly because employers typically pick up 70-plus 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% of healthcare costs for 20 or more years, growing at an inflation rate of approximately 6%.”
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 it’s a very good deal for people in the early parts of their retirement since there are often no premiums,” Rutledge said, “but it’s less of a clear advantage as you go along if you’re going to start to need a lot of care from providers who are not part of your plan’s network.”
Carolyn McClanahan, a certified financial planner and physician, agreed.
“Out-of-pocket costs are on the rise, and while the number of people who have signed up for Medicare Advantage plans continues to grow, and costs seem cheaper than traditional Medicare for enrollees, once they get sick and need services, the out-of-pocket costs are higher since Medicare Advantage plans typically requires pre-authorization and are likely to deny services,” she said.
That’s when things go south. “At that point, a Medicare Advantage consumer is left without the care they want unless they are willing to pay out of pocket,” she said.
Traditional Medicare, on the other hand, rarely requires prior authorization for healthcare services or medicine.
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Here are some ways to prepare and manage out-of-pocket medical expenses in retirement:
Stay on the job a few extra years. If possible, work longer and stay on your employer’s insurance as long as you can while you build up savings.
Build a health savings account (HSA). If you’re retiring soon, maximizing HSA contributions can be a smart move. An HSA lets you put money in on a tax-free basis, lets that money build up tax-free, and lets it come out tax-free for qualified healthcare expenses. (Some states assess state taxes.)
Push back claiming your Social Security benefit. If you can afford to, delaying tapping into your benefit until age 70 will deliver a larger monthly check for the rest of your life — helpful, should you be faced with hefty healthcare bills as you age.
Here’s how it works: You can take Social Security as early as age 62, but your benefit can be slashed as much as 30% from what it would have been at your full retirement age (FRA). For anyone born in 1960 or later, your full retirement age is 67. If you delay benefits from your full retirement age until age 70, you earn delayed retirement credits. Those come to roughly an 8% increase for each year until you hit 70, when the credits stop accruing.
Budget for costs. It’s important to make future healthcare costs a part of your retirement planning budget and factor potential unexpected healthcare costs into your emergency fund, McClanahan said.
“The system is very broken, and healthcare is now purely a business, she added. “The only advice I can give is for people once they are retired is to make sure they become engaged patients and question the care being provided and what they are being charged for those 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 on Bluesky and X.
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