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Should you plan for the cost of your healthcare – your Social Security benefit may depend on it

By March 31, 2014December 20th, 2022No Comments

The common sense answer would, obviously, be of course you should, but when the stats are tallied and the facts shown it would appear that the common sense answer is not being applied at all, and this may wind up costing you more in retirement than just your health.

According to Sun Life’s Flying Blind Survey less than 8% of all Americans have ever planned for the cost of their healthcare and this includes planning for Long-Term Care as well and the problem runs even deeper than just being a line item in your budget.

Why? The answer is simple, your health costs will consume a large portion of your Social Security benefit in retirement thanks to a rule change that automatically deducts certain premiums and any surcharges from your Social Security benefit.

With a growing number of Americans relying on their Social Security benefits for income in retirement the expense of health is and will be very problematic.

Social Security is reporting that for a majority of Americans this benefit is a major source of income for them in retirement. In fact this benefit for retirees is:

  • Received by Nine out of ten individuals age 65 and older receive Social Security benefits.
  • For elderly Social Security beneficiaries, 53% of married couples and 74% of unmarried persons receive 50% or more of their income from Social Security.
  • For elderly Social Security beneficiaries, 23% of married couples and about 46% of unmarried persons rely on Social Security for 90% or more of their income.

And the problem:

In order to receive Social Security benefits you must have health coverage and again the expense of it, at least a majority of it, will be automatically deducted from your Social Security benefit.

If we take a look at a 60 year old male worker today that has earned on average $50,000 a year for his entire working career and is planning on retiring at age 66, Social Security, using its Quick Calculator, is reporting that his benefit will start at $18,384 a year.

What we also know, thanks to Social Security, is the maximum expected Cost of Living Adjustment (COLA) for everyone each year will only be 2.8% for the foreseeable future.

The problem, again, obviously, is his healthcare and for good reason.

Because if we also take a look at what healthcare is going to be in retirement the amount of Social Security benefits may not be enough for those 53% of Americans who rely on it.

According to Medicare we know today that:

  • The Medicare Part B premium is $1,258.80 a year
  • Medicare Part D premiums, on average, according to Q1medicare are $645 a year
  • MediGap policy Plan F, on average, according to Weiss ratings are $1,952 a year

Please note that Part D and Gap Plans are also based on residency, gender, age and for Part D income.

We also know the rates of inflation, as they can be found in both the latest Medicare Board of Trustees report along with data from the Department of Health Human Services:

  • Medicare Part B has been and is projected to inflate at a rate above 7.5%
  • Medicare Part D is projected to inflate by over 7%
  • MediGap Plans are projected to inflate by just under 4%.

From simple math we can see that by 2020, when this male is retired and enrolled into both Social Security and Medicare at age 66 he will have:

  • $18,384 in Social Security benefits.
  • $5,420 in health costs.

About 29% of his Social Security benefit will be consumed by his health costs and the problem only compounds further.

By the time he reaches age 80, in 2034, his Social Security benefit will have grown to about $27,000 but, the cost of his health will have also risen to about $12,500 or close to 46% of his entire benefit.

If he does reach the age of 90, where he is at the point of no longer being able to generate income from employment or possibly even his savings, his Social Security will have grown to about $35,700 annually but his health costs, which are just his premiums, will erode about 66% of that much needed benefit.

Can this happen? Who knows, but from what the government has provided us in terms of information on where the cost of healthcare will go, the answer is a frightening yes and again how many Americans have even planned for them?

Less than 10%.

To quote the President of the United States, Pres. Barack Obama, in his State of the Union Address in 2013 “the biggest driver of our long term debt is the rising cost of healthcare”.

The one great aspect of this problem, one that so many Americans have failed to recognize, is that there are solutions to it and those solutions lie directly in the hands of today’s financial professionals.

By planning accordingly, understanding how the rules of retirement have changed and creating a strategy that incorporates all of the investments and products that are available now, this issue of healthcare can be, both, properly addressed and managed.

Thankfully, there are specific products that can help manage this cost of healthcare, along with the ever increasing costs of Long-Term Care too, while also generating that much needed income all retirees will have to have.

Because what you don’t know about retirement will hurt you!

For more on information where your health costs may head and how the rules of retirement have changed please see