Healthcare is cutting Social Security checks, and the squeeze is getting worse.
Out-of-pocket health care expenses in retirement are a mountain more than people plan. Even with Medicare coverage and excluding long-term care, retirees face large out-of-pocket costs for premiums, copays, and uncovered medical services.
These bills eat up about a third of the typical retiree’s Social Security income and about a quarter of total income, according to a new report from Boston College’s Center on Retirement.
“Retirees get it because they’re writing checks now, but those nearing retirement need to realize it’s coming,” Matthew Rutledge, an economist and author of the report, told Yahoo Finance. “It’s a rude awakening for people as they approach retirement.”
For about half of seniors, monthly Social Security benefits provide at least 50% of their income, and for 1 in 4 seniors, it provides at least 90% of income. For 27% – 6.4 million seniors – it is their sole 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 are smaller. The average woman’s monthly Social Security check is about a quarter less than the average man’s, due in part to lower wages over their working years, time out of the workforce for caregiving and more part-time work.
The bad news is that health care costs are not going down.
“Going forward, we’re going to see a really large portion of people’s Social Security checks going toward medical costs,” Rutledge said. “The picture isn’t going to get better anytime soon.”
Even basic medical care in early retirement is expensive. “Medicare premiums have grown very high, much faster than inflation in the last few years,” Rutledge said.
Medical inflation is projected to climb at more than twice the rate of Social Security cost-of-living adjustments. ·MoMo Products 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 many people must pay before their Medicare coverage begins, rose $26 this year to $283.
Furthermore, medical inflation is projected to climb at twice the rate of Social Security cost-of-living adjustments (COLAs).
Health-related cost inflation is expected to remain high, with an estimated long-term inflation rate of 5.8% (based on average health and national average costs for a 65-year-old couple retiring in 2026), according to a new report from data firm HealthView Services. Social Security COLAs are projected to increase by just 2.4%.
Keep in mind that future costs will vary from person to person, depending on factors like your gender, how healthy you are, where you live, and how many years you’ll live.
“Healthcare costs in retirement come with sticker shock because employers typically pick up 70-plus percent of an employee’s health insurance premium,” HealthView Services CEO Ron Mastrogiovanni told Yahoo Finance. “But when people retire, they are responsible for 100% of health care costs for 20 or more years, increasing at an inflation rate of about 6%.”
Your Medicare Advantage plan is unlikely to be a panacea. More than half of beneficiaries now opt for Medicare Advantage coverage, but they should also be prepared to feel the sting.
These plans have an Achilles’ heel. “Medicare Advantage seems like a very good deal for people in the early parts of their retirement because there are often no premiums,” Rutledge said, “but if you start needing a lot of care from providers that aren’t part of your plan’s network, that clear benefit diminishes as you go along.”
Carolyn McClanahan, a certified financial planner and therapist, agrees.
“Out-of-pocket costs are rising, and more people are signing up for Medicare Advantage plans, and while the cost seems cheaper for enrollees than traditional Medicare, once they get sick and need services, Medicare Advantage plans tend to have higher out-of-pocket costs,” she said.
When things go south. “At that point, a Medicare Advantage consumer is left without the care they want unless they’re willing to pay out of pocket,” she said.
Traditional Medicare, on the other hand, rarely requires prior authorization for health services or drugs.
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Here are some ways to prepare for and manage out-of-pocket medical expenses in retirement:
Stay on the job for a few extra years. If possible, work longer hours and stay on your employer’s insurance as long as you can while building savings.
Create a Health Savings Account (HSA). If you’re retiring early, increasing HSA contributions may be a smart move. An HSA lets you put money in on a tax-free basis, withdraw that money tax-free, and withdraw it tax-free for qualified health care expenses. (Some states assess state taxes.)
Pushing back on claiming your Social Security benefits. If you can afford it, delaying tapping into your benefits until age 70 will provide a larger monthly check for the rest of your life — useful, if you face hefty health care bills as you age.
Here’s how it works: You can take Social Security at age 62, but your full retirement age (FRA) can be cut by up to 30% of your benefits. For anyone born in 1960 or later, your full retirement age is 67. If you delay your full retirement age until age 70, you earn late retirement credits. They come in roughly 8% increments for each year until you reach 70 and the credits stop accruing.
Budget for costs. It’s important to make future health care costs a part of your retirement planning budget and factor potential unexpected health care costs into your emergency fund, McClanahan said.
“The system is so broken, and health care is now completely a business,” she added. “The only advice I can give people after retirement is to make sure they become engaged patients and question the care provided and what they are being charged for those services.”
Kerry Hannon is a senior columnist at Yahoo Finance. He is a career and retirement strategist and author of 14 books, including “Retirement Bites: Gen X’s Guide to Securing Your Financial Future,“”In Control at 50+: How to Succeed in the New World of Work,” and “You’re never too old to be rich.” Follow her Bluesky and X.
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