You won’t have that much Social Security left until you pay medical bills when you retire

SmartAsset: how much retirement income you will have after paying medical expenses

Retirees face significant out-of-pocket costs for premiums, copays, and unsecured services. One way to gauge this burden is to see how much these medical expenses eat into their Social Security benefits and other income. Here’s a look at how much these expenses will lower your retirement income and some of the options you have to improve those reductions. A financial advisor can help protect your retirement against medical and other expenses.

How much medical costs cut into retirees’ incomes

Retirement income can come from various sources. The most well-known is Social Security, but it can also come from annuities and other insurance products, tax-advantaged plans such as IRAs and 401(k)s, profit-sharing plans, and the sale of assets, including securities. Despite the variety of sources of income retirees can draw on, that income can take a major hit from medical expenses.

Boston College’s Center for Retirement Research analyzed data from the 2018 Health and Retirement Study to calculate the share of Social Security benefits and total income available for non-medical expenses. The center also examined how this measure differs by gender, age, health status, income and supplemental insurance.

What researchers found is that for the median retiree, out-of-pocket medical costs, including premiums, cost-sharing, and unfunded services (excluding long-term care), only 75% of Social Security benefits remain available for other expenses. That percentage is lower for women and people in low-income households.

Who will be hit the hardest?

SmartAsset: how much retirement income you will have after paying medical expenses

SmartAsset: how much retirement income you will have after paying medical expenses

For women, the median residual share is 72% of Social Security benefits, compared to 78% for men. That’s not because women pay significantly higher health costs than men — their premiums are slightly lower and their other out-of-pocket costs slightly higher — but because they have significantly lower Social Security benefits. Of the retirees with the highest expenses, 5% of retirees are left with only 11% of their benefits after out-of-pocket costs. Even at the 10th percentile, retirees spend nearly a third of their benefits on out-of-pocket expenses.

The bad guy? Premiums for Medicare Part B — which are rising — Part D, Medicare Advantage, and supplemental plans, including retiree health insurance, make up the bulk of medical expenses for most retirees, except for those with the highest spending.

How to reduce healthcare costs

There are several ways to reduce medical costs, but three stand out.

Eating and exercising. Exercise and a balanced diet low in salts, saturated fats and sugars can keep you fit and slim. Doing this can also help prevent diabetes, heart disease and obesity and keep your immune system strong. It may seem like a daunting task, but even a little exercise a day can have big consequences. Recent research suggests that short periods of intense exercise followed by periods of rest can dramatically improve your fitness. Even seven-minute workouts have been shown to have a positive impact on your health.

Eating a mostly plant-based diet with the addition of small amounts of meat (flexitarianism) and dairy has numerous proven benefits:

  • Lose excess weight and maintain your ideal weight

  • Less burden on the environment

  • Tame your junk food cravings and constant snacking

  • Stretch your dollar

Stop smoking. You know how bad cigarettes are for your health and how expensive that pack is. Whatever you have to do to kick the habit, it’s not only worth it for your heart and lungs, but also financially. You may be able to avoid healthcare costs and save money on a daily basis. If you are a smoker, you can start saving money right away by choosing not to smoke. Everyone who loves you will breathe easier, just like you and your wallet.

Flexible spending accounts. Contributing to a flexible spending account (FSA) can help you pay out-of-pocket medical expenses when needed, and the FSA is federal and tax-free for Social Security purposes. In some cases, FSAs even evade local and state income taxes. Check with your employer if this is an option for you.

It boils down

SmartAsset: how much retirement income you will have after paying medical expenses

SmartAsset: how much retirement income you will have after paying medical expenses

Boston College’s Center for Retirement Research found that with a substantial portion of retirees’ incomes going toward medical expenses, their finances are more precarious than social security alone suggests. With out-of-pocket health care expenses decreasing disposable retirement income and Part B premiums rising, it’s understandable why many retirees feel like making ends meet is hard. Fortunately, there are free options that retirees can use to ease financial tightness.

Tips about retirement

  • Saving medical costs is only half the battle; rising income is the other half. A financial advisor can help you increase your income. Finding a qualified financial advisor doesn’t have to be difficult. SmartAsset’s free tool pairs you with up to three financial advisors serving your area, and you can interview your advisor matches for free to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

  • Use SmartAsset’s free retirement calculator to see how you’re preparing for retirement.

Don’t miss any news that could affect your finances. Receive news and tips to make smarter financial decisions with SmartAsset’s semi-weekly email. It’s 100% free and you can unsubscribe at any time. Register today.

Click for important information about SmartAsset here.

Photo credit: © Somsuk, ©, ©

The post How Much Retirement Income You’ll Have After Paying Medical Expenses appeared first on SmartAsset Blog.

Leave a Reply

Your email address will not be published. Required fields are marked *