The Shocking Threat to Your Retirement: It’s Not What You Think

What’s the biggest threat to your future retirement security?

If you guessed the disappearance of Social Security, getting downsized in the years before you’d planned to retire, or even losing a bundle in the stock market, you’d be wrong on all counts.

The biggest hazard to your financial stability in retirement is something you’ve probably never planned for – even if you’ve been saving for years in anticipation of the day you bid your job farewell.

As it turns out, the greatest threat to your retirement is the explosion in healthcare costs that will put many retirees in the poorhouse — right at the very time they should be enjoying their Golden Years.

A new Insights white paper from HealthView Services offers a shocking glimpse into how healthcare expenses will impact retirees.  In fact, for the average American couple retiring in a year, 69% of their social security benefits will be consumed  by health care costs, a number that will rise to 98% in just 10 years from now.

According to HealthView, which crunched the numbers from 50 million annual health care cost cases to estimate future expected health care costs, a retirement health care cost crisis is brewing in America.

A Triple Whammy

The culprit? It’s a triple whammy that none of us can afford to ignore:

  • rising healthcare costs are far outpacing wages and cost-of-living increases for Social Security recipients;
  • longer life expectancy has more Americans living into their 80s and 90s; and
  • retirement savings are low or non-existent, including the fact that when people do save for retirement, they often haven’t factored in healthcare costs

Add it all up and the picture isn’t pretty.

In a nutshell, because health care expenses are rising at a rate of 5% to 7% per year, HealthView’s Retirement Health Care Cost Index® shows retirement health care costs on a path to exceed retirees entire monthly Social Security benefit.

Think about that for a moment.

Today, the average retiree’s Social Security check is $1,294 per month, according to the Social Security Administration.

Many retirees use that Social Security check as their sole income, to pay for a wide variety of items such as rent/mortgage, food, utilities and other household bills.

Among elderly Social Security beneficiaries, 22% of married couples and about 47% of unmarried persons rely on Social Security for 90% or more of their income.

So it’s almost unfathomable to think that someone living purely on Social Security simply won’t be able to make it just based on rising health care costs.

But that’s exactly where HealthView’s data says many Americans are heading as health care costs continue each year to outpace incomes and cost of living increases in public benefits, such as Social Security, which last saw a 1.7% increase.

Compounding the Problem

HealthView cites four problems that are adding to the emerging crisis:

For starters, only a tiny fraction of financial advisors are talking to their clients about how to manage health care costs in retirement.

Additionally, up until recently, most financial advisors didn’t have the tools necessary to calculate expected retirement health care costs for their clients. But HealthView now offers advisors a variety of tools, like HealthWealthLink and

HealthView Prime through the Insured Retirement Institute, which make it far easier to calculate future health care expenses.

Individuals can also use a free, one-click version of HealthWealthLink to calculate average retirement health care costs (http://apps.hvsfinancial.com/hvadvisor). It’s a nifty and eye-opening tool that everyone should check out at least once.

A third problem: far too many Americans erroneously believe that Medicare will cover most, if not all, of their health care costs in retirement. In reality, as the nation’s 78 million Baby Boomers (those born between 1946 and 1964) start to transition from the workforce and enter the Medicare system, they’ll find that Medicare really only covers about half of total healthcare expenses.

And finally, most pre-retirees are focused on building their assets – or even rebuilding them after the Great Recession – and so their attention simply isn’t focused on this topic.

But the time to act is now.

There are currently 2.8 workers for each Social Security beneficiary. By 2033, there will be 2.1 workers for each beneficiary. With cuts in government spending and fewer workers paying taxes into Medicare, it’s inevitable that the burden of paying retirement health care costs will increasingly be placed on the backs of retirees.

Exactly how much you’ll pay is very individualized, since retirement health care costs will differ based on your gender, age to retirement, health, expected longevity, the state you live in, your retirement income bracket, and when you start collecting Social Security benefits.

For example, a healthy person will obviously have lower costs, generally speaking, than someone with a chronic illness.

But that’s the obvious stuff. Less obvious are random factors, like residency, that can greatly impact your premiums.

For instance, although Medicare is a federal program, states manage supplemental insurance programs, such as Medicare Part D and Medi-Gap policies. So prices can vary tremendously based on nothing other than, say, whether you reside in Hawaii versus Maryland.

Potential Solutions

It certainly helps to have a financial advisor to walk you through some of these issues. But you don’t have to be rich to address health care costs and start doing some planning on your own.

A good starting point is to simply get an estimate of what your healthcare costs are likely to be in retirement.   But while a general estimate will give you a sense of the magnitude of these costs, it’s important to understand your individual expected retirement health care costs.  Your health and gender can, for example, make a big difference to your number.  Advisors with HealthView’s more sophisticated planning tools can help you do that.

You should also start strategizing about when to claim Social Security benefits.

By some estimates, maximizing Social Security can add more than a $100,000 in additional income, which can help tackle healthcare costs.

Some Baby Boomers and pre-retirees will want to consider working longer too. It may seem ideal to retire at a specific age, but financial realities may make it necessary to stay in the workforce longer.

For the affluent, managing retirement income to avoid Medicare surcharges by using Roth IRAs can also make a big difference.

And finally, heed the call to start saving for retirement now – not in the future. Procrastination will only hurt your financial security. But don’t just save for retirement in general. Earmark savings specifically for future healthcare costs.

Unfortunately, in 2013, half of all Medicare beneficiaries had $61,500 or less in savings. That’s hardly enough to tide an individual or a couple over for living expenses throughout retirement – let alone handle pricey health care issues that will emerge over the years when people start aging.

By setting aside some cash specifically for retirement healthcare costs, you’ll minimize the financial strain of these expenses in the long run.   Understanding and planning for retirement health care costs is good for your physical health – and your economic well-being too.

Scroll to Top

Stay Informed with Our Exclusive Newsletter!

Subscribe to our newsletter and never miss out on the latest updates, exclusive offers, and insightful articles.

We respect your privacy!