There is a lot of talk about planning for Social Security from the financial industry, which is great as people need to know how to generate the most amount of income possible in retirement at the lowest penalty, but the scary part: NO ONE IS PLANNING FOR HEALTHCARE COSTS.
Here is a breakdown of the impact that Medicare may have, if everything just stays the same, on an average couple in retirement:
• They are both 60 years
• They both are contemplating collecting Social Security at age 66, which is their full retirement age
• He earned $50,000 on average his entire working career.
• She earned on average $40,000 her entire working career.
• In retirement they will NEVER hit the first Medicare Income Bracket.
Their Social Security information:
• For Him, the Social Security benefit at 66 will be $21,288 (His Full Retirement Benefit (FRB)
• For Her, the Social Security benefit at age 66 will be $18,384
Social Security’s cost of living adjustments (COLA’s) are only expected to be 2.8% according to the Social Security Board of Trustees for the foreseeable future.
The Medicare Information (according to the Medicare Board of Trustees):
Due to Medicare Part B & D having late enrollment penalties this couple will enroll into Medicare once they are eligible after retirement (at age 66).
Part B info:
- $104.90 – Medicare Part B premium a month.
- 7.856% – Medicare Part B historic inflation rate over the last 47 years.
Part D information:
- $61.10 – State of Idaho monthly average according to Q1medicare.com.
- 7.155% – The projected rate of inflation according to the Medicare Board of Trustees.
MediGap Plan F information:
- $173.58 – National average monthly premium for females according to Weiss Ratings.
- $188.25 – State of Idaho average monthly premium for males according to Weiss Ratings.
- 5% – According to AARP the average rate of inflation for MediGap policies since 1997.
From the graphs below it can be seen how the premiums from Medicare will impact a person or couple’s Social Security.
- The Social Security benefit in 2020 at age 66 is: $21,288.
- The expected health coverage premiums in 2020 at age 66 are: $6,118.67.
- The actual amount received from Social Security is: $15,169.33.
- Health costs in 2020 will eat up 28.7% of his Social Security benefit.
- By 2038, when he is 85, the amount health costs will consume his Social Security benefit will be 55.8%.
- If he lives until age 90 that percentage will increase until it is 67%.
- The Hold Harmless Act will not take effect until he is 95 years old.
- As you can see, his take home Social Security benefit will NEVER increase.
The reason why this is such a problem:
- According to Social Security, roughly 52% of all married couples after the age 65 rely on Social Security benefits to be 50% of their income And how is income going to be affected later on in his life?.
For Her, things are quite different:
- The Social Security benefit in 2020 at age 66 is: $18,384.
- The expected health premiums in 2020 at age 66 are: $6,109.34.
- The actual amount received from Social Security is: $12,274.66.
- Health costs in 2020 will eat up 33.2%3 of her Social Security benefit..
- By 2038, when she is 85, her Health Costs will be about 64.6% of her Social Security.
- If she lives until age 90 that percentage will increase until it is 77.8%.
- The Hold Harmless Act doesn’t take effect until she is 94 years old.
- As you can see, her Social Security benefit will NEVER increase.
Please note that by delaying benefits there will be a more positive result for this couple, while accepting Social Security at a younger age will result in a more adverse result in terms of not only income, but also taxes.