Health care costs wiping out Social Security benefits: Study

Health care inflation is on track to absorb annual Social Security cost-of-living adjustments and, over time, could consume a growing share of retirees’ total benefit checks, forcing advisors to rethink how they model retirement income and spending.

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A new report from HealthView Services, a health care cost-projection software company, found that health care costs in retirement are climbing at more than twice the pace of Social Security cost-of-living adjustments. Projections show that medical expenses for many future retirees are expected to equal or exceed their total Social Security benefits, meaning that paying for health care alone could effectively wipe out the program’s income support.

And those costs aren’t just a future problem. A recent study from the Center for Retirement Research found that health care spending already absorbs a substantial share of retirement income, leaving many older Americans with far less discretionary cash flow than benefit levels alone might suggest.

“With out-of-pocket health expenditures already eating away at retirement income, and the uncertainty from further health policy changes and Social Security drawing ever closer to trust fund depletion, it is understandable why many retirees feel that making ends meet is difficult,” CRR researchers wrote.

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Medical inflation vs. Social Security COLAs

HealthView’s report projected long-term health care inflation of 5.8% annually for a typical 65-year-old couple retiring this year, based on average health and national cost assumptions. Over the same period, Social Security COLAs are projected to rise by just 2.4% annually.

That growing disparity creates a compounding effect. A healthy 55-year-old couple with average benefits is projected to need 104% of their future Social Security income to cover medical premiums and out-of-pocket costs. A 45-year-old couple faces an even steeper challenge, with health care expenses projected to reach 129% of their benefits. Even today’s new retirees are under pressure, with a 65-year-old couple projected to need 84% of their benefits for health care alone.

The divergence is already visible in current data. In 2026, Medicare Part B premiums deducted directly from Social Security rose 9.7%, while the Social Security COLA came in at 2.8%.

“After a decade of publishing these data reports, the cost of health-related care in retirement still comes with sticker shock,” HealthView Services CEO Ron Mastrogiovanni said in a statement. “The report serves as a somewhat chilling reminder of the limited impact of legislative changes to reduce the burden of these costs, and that retirees will need a growing portion of future Social Security benefits to cover their expenses.”

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Lifetime costs and planning implications

For an average healthy 65-year-old couple, HealthView researchers estimated that annual health care costs for commonly selected Medicare configurations will rise from roughly $17,000 in the first year of retirement to more than $55,000 by age 85.

Over a full retirement, lifetime premiums for Medicare Part B, Part D, Medigap, dental coverage and all out-of-pocket expenses amount to nearly $662,000 in today’s dollars, or roughly $955,000 in future value.

Those figures vary widely based on location, health, longevity and income. A healthy 65-year-old couple in Missouri, for example, could face lifetime health care expenses exceeding $1 million, while the same couple in Washington State might see costs closer to $880,000.

Income also plays a critical role, since Medicare’s income-related monthly adjustment amount (IRMAA) policy increases premiums as retirees’ modified adjusted gross income rises.

Data shows that a healthy 55-year-old woman’s lifetime Medicare premiums would cost about $306,000, assuming she reports income of less than $136,000 a year. Retirees with income above that threshold can see between a 34% and a 208% increase in their premium costs, equating to hundreds of thousands of dollars in additional health care expenditures.

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What retirees really have left to spend

For many retirees, the strain of health care costs on Social Security income is already a reality.

CRR researchers found that the median retiree has only 71% of Social Security income remaining after paying premiums, co-pays and uncovered medical expenses. When total income is considered, including pensions and investment withdrawals, the typical retiree retains about 88% after health care costs.

Still, those averages mask wide disparities. Some 5% of retirees have virtually none of their Social Security benefit left after medical spending, and even at the 10th percentile, retirees keep only about one-quarter of their benefit for non-medical needs.

Health care expenses also fall unevenly across gender lines, with women often facing the double burden of lower income and higher lifetime costs. Women typically receive about 75% of the Social Security benefits of men, live an average of two years longer and incur higher medical expenses as a result of that longevity.

HealthView estimates that a healthy 63-year-old woman retiring at 65 and living to age 90 will spend roughly $560,000 on health care, compared with about $443,000 for a 65-year-old man with a life expectancy of 88. The financial strain can intensify after the death of a spouse, when household income declines but Medicare IRMAA charges remain elevated.

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Health care complexities widen advisor role

The combined findings point toward a central conclusion: Health care planning can no longer be treated as a secondary consideration in retirement income strategies. Instead, it demands the same level of rigor as Social Security optimization, portfolio construction and tax planning.

As health care costs continue to consume a growing portion of income in retirement, experts say financial advisors serve an increasingly important role for seniors looking to secure their retirement.

“Given the complexity of retirement health care choices, Americans planning for retirement need expert help from advisors,” Michael Daley, HealthView Services’ head of research and marketing, said in a statement.