Alarming Analysis: Social Security Will Not Be Adequate to Fund Your Out-of-Pocket Healthcare Spending

social security and medicalSocial Security has served as a financial safety net for many older adults, but recent research indicates that era is drawing to a close as retirement health care costs skyrocket.

Many older Americans rely heavily on Social Security benefits as their main source of income in retirement. Nearly half (47%) of unmarried people depend on Social Security for 90% or more of their income, according to the Social Security Administration, as do 22% of married couples.

Healthcare Costs to Exceed Social Security Benefits

HealthView Services’ new Retirement Health Care Cost Index measures the percentage of Social Security benefits a healthy, retired couple receiving the average expected benefit at full retirement age would have to pay for health care-related costs.

In the next couple of decades, middle-class American retirees’ lifetime health care costs are on track to exceed their lifetime benefits, creating a shortfall for many.

  • Retiring 10 Years from Now?: For a healthy couple set to retire in 10 years, retirement health care costs will increase from today’s approximately 69% of Social Security benefits to 98%, according to
  • Retirement in 20 years? The index found that couples retiring in 20 years are expected to need 127% of of their benefits to cover health care costs.
  • Retirement in 30 Years?: The news is worse if you are young, couples retiring in 32 years will need 190% of their benefits to cover out of pocket healthcare expenses in retirement.

To put that in perspective, the average healthy couple retiring next year would need approximately $366,600 in today’s dollars to cover their retirement health care costs, according to HealthView Services data. Ten years down the road, factoring in estimated health care cost inflation and Social Security cost of living adjustments, costs will rise to about $421,000 in today’s dollars.

“The Index reveals an ugly truth that will come as a shock to many: Over the course of time, retirees will need to use their entire Social Security benefit just to pay for health care,” said Ron Mastrogiovanni, Founder and CEO of HealthView Services, about the Index findings. “Many Americans believe that Medicare will cover most or all of their health care costs in retirement. This is simply untrue.”

With Social Security benefits eaten up by estimated health care costs, retirees will have to look to other sources to fund expenses such as housing, taxes, and food.

“First and foremost, people absolutely must save more now, today, without delay—and keep doing it,” says Connie Stone, CFP, co-founder of Ohio-based Stepping Stone Financial, Inc.

A contributing factor, she says, is that the government—at local, state, and federal levels—won’t have the resources to close the gap between Social Security benefits and retirement costs.

How to Prepare?

With that in mind, it’s crucial for middle-class Americans to take control of their own retirement savings. Stone provides the following suggestions:

  • Invest savings wisely
  • Get educated about financial responsibility and management
  • Learn how to appropriately allocate assets
  • Generate fixed-income holdings with a portfolio that includes government Series I savings bonds and/or inflation-protected bond mutual funds or bond index mutual funds
  • Invest in non-speculative stock mutual funds with exposures to broad market indexes (U.S. or international) and company sizes (large, mid, small)

The internet holds a wealth of information for financial education and management, Stone adds, including websites like Kiplinger, the Central Provident Fund Board, and the National Association of Personal Financial Advisors. You can also use the NewRetirement Retirement Calculator to find out how to optimize Social Security.

NewRetirement Planner

Do it yourself retirement planning: easy, comprehensive, reliable

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