Even increased Social Security will not be enough to cover future healthcare costs, according to a new report. According to research, a couple retiring at 65 next year may expect to spend over 70% of their lifetime Social Security income on healthcare bills alone.
These findings come despite the recent positive news that older persons would get an 8.7% boost in Social Security payments for the next year and a $5.20 reduction in monthly Medicare Part B costs. Experts believe that the combination of a significant increase in benefits and decreased premiums is extremely unusual and unlikely to occur again anytime soon.
As a result of long-term healthcare inflation outpacing Social Security raises, medical expenses are expected to consume an increasing portion of retirement benefits, according to a report by HealthView Services, a financial advisor-supplied retirement healthcare cost data, and tools. According to HealthView Services’ estimations based on government statistics, Medicare Part B premiums will grow by around 5.9% each year until 2031; however, the Social Security Administration predicts a 2.4% cost-of-living adjustment per year from 2024 to 2031.
Pre-retirees who ignore healthcare planning do so at their risk, according to Ron Mastrogiovanni, CEO of HealthView Services. “It’s so big that ignoring it might influence your lifestyle,” he explained.
Knowledge is an excellent place to start. Many younger individuals, according to Mastrogiovani, wrongly assume that Medicare is free and that their healthcare bills will be nil once they reach the age of 65. Medicare offers comprehensive coverage, but it is not free: recipients must pay monthly Part B premiums, which are taken from their Social Security payments. Many people pay additional rates for Part D prescription medication coverage and Medigap supplement coverage.
Medicare demands cost-sharing in deductibles, copayments, and coinsurance in addition to premiums. Furthermore, original Medicare does not cover major expenses such as dental treatment and hearing aids. (Many private Medicare Advantage plans pay part of these costs.)
According to HealthView Services, a healthy couple may expect to spend 45% to 48% of their Social Security income, before taxes, on healthcare expenditures in the first three years of retirement. After ten years, that figure rises to 64%, and at the end of life—the paper estimates the couple dies at the age of 89—nearly all of their Social Security income goes to medical costs: they would get $56,066 in benefits vs. $55,555 in medical expenses. The large outlay is due to greater compounded medical expenses and increased healthcare consumption in old age.
The estimates are based on each spouse filing for Social Security at age 65, and they are in good health for their age and do not have any significant illnesses like diabetes. Long-term care expenditures such as home health aides are not included in the calculations, nor is the Medicare income-related monthly adjustment amount (IRMAA) paid by higher-income beneficiaries.
A health savings account (HSA) is an excellent way to plan future healthcare bills. You may only open one if you have a qualified high-deductible health insurance plan. If you can afford it, Mastrogiovanni recommends investing your HSA money rather than keeping them in cash and not using them to cover medical costs while you’re still working.
Pay your medical expenditures with your cash flow instead, and let your HSA savings grow tax-free in the market. You can withdraw the funds tax-free in retirement to pay for eligible medical expenses, which include everything from Medicare premiums to dental operations, durable medical equipment, and acupuncture.