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  • Writer's pictureChris Stein, CFP®

Healthcare May Take Your Social Security

Many people believe once they reach the age of 65 and are eligible for Medicare, their healthcare expenses miraculously go away. That is simply not the case. Medicare does not cover all your healthcare expenses in retirement. You will have Medicare Part B premiums (Part A is provided at no cost), Medigap premiums (to provide coverage where Medicare doesn’t), prescription drug premiums and most long-term care costs. Coverage of these expenses is limited, or simply not covered under traditional Medicare. The startling reality for many retirees is that they need to fund, often from their own limited cash flow, a host of medical related expenses not covered under Medicare.

Retirement Healthcare Cost Index

To help call attention to retirees’ healthcare costs, Health View Services, a company that creates software and tools used by financial professionals to project the cost of healthcare and to help maximize Social Security benefits, published a new study earlier this year. Contained within this study was the Retirement Healthcare Cost Index. This index measures the assumed out-of-pocket expenses a retiree will experience, including Medicare Part B, Medigap premiums and Prescription Part D premiums. The findings of this study were shocking.

It was estimated by Health View Services that a current retiree will need 57% of their Social Security benefit to cover their anticipated healthcare costs throughout their retirement. In another decade that number is anticipated rise to 88% of Social Security benefits just to cover healthcare expenses! Even more alarming, in another 20 years, Health View Services estimates a retiree will need 116% of their Social Security benefits to cover their anticipated  expenses! (Numbers based on a Cost of Living Adjustment of 3% for 2017.)

Cost Of Living Adjustment

Much of the reason for this rapid growth is because Social Security benefits have a Cost of Living Adjustment (COLA) that increases at a rate far below the inflation rate of health care. (See our previous blog post for a nice explanation of Social Security COLA) Retirees who are counting on Medicare to pay for all of their healthcare needs are going to be in for a rude awakening as they progress through retirement. It is important you properly plan for your medical expenses as you enter retirement. For more information on this Health View study, and how healthcare can affect your retirement, please use the play  button below.

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