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Retirees Will Spend a Third of Their Social Security on This One Big Expense

By Christy Bieber – Nov 17, 2018 at 7:16AM

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You'll be surprised how much you spend in this one area as a senior.

You probably have lots of plans for your retirement. Unfortunately, if you're counting on spending your Social Security benefits on enjoying retirement, you may be surprised to find much of your money is eaten up by one expense that isn't very much fun but that's very necessary. 

That cost: healthcare. A new study from the Center for Retirement Research (CRR) shows that seniors spend an average of almost $4,300 annually per person on out-of-pocket healthcare costs.

These expenditures consume around one-third of the total amount of monthly benefits seniors receive from Social Security. 

Senior talking to doctor holding clipboard.

Image source: Getty Images.

Your Social Security benefits will be consumed by healthcare expenses

According to the CRR, the average senior's annual out-of-pocket spending on healthcare totals $4,274 per person, with $2,965 of that money going to insurance premiums.

Premiums generally must be paid for Medicare Parts B and D. Some seniors opt for Medicare Part C plans or Medigap plans that charge higher premiums but reduce coinsurance costs for care.  

Spending so much on healthcare significantly reduces income available to retirees. The CRR revealed the average retiree had just 65.7% of Social Security benefits remaining after paying out-of-pocket healthcare costs and just 82.2% of total household income remaining after paying for care.

And, for many senior households, things are even worse. Close to one-fifth of all retirees had less than half their Social Security income left after healthcare spending, and 6% of retirees spent more than half of total household income from all sources on healthcare.

Spending this much is a major problem, especially when many seniors are overly reliant on Social Security and have too little income to begin with

How can you keep healthcare costs down?

The best way to make sure you can afford your care as a senior is to save money specifically earmarked for healthcare.

If you're eligible to contribute to a Health Savings Account, you can get big tax benefits. If you aren't, you should set aside extra money in other tax-advantaged accounts, such as a 401(k) or IRA, specifically for care. 

Unfortunately, if you're already in retirement and don't have a fortune saved to cover healthcare, you'll need to find ways to keep costs as low as possible. Some of the best ways to keep your healthcare expenditures low include:

  • Talking with your doctor: Medical professionals can often help you find generic versions of expensive medications, may have prescription drug coupons to offer, and can otherwise find ways to help you reduce spending if you're struggling. 
  • Taking steps to stay healthy: The healthier you are, the lower your care costs. To stay healthy, get preventive screenings (which are often free under Medicare) so you can fix little problems before they turn into big ones. Avoid smoking, exercise regularly, and get help managing chronic conditions. 
  • Matching your insurance coverage to your needs. You have the option to buy a Medicare Part C plan to replace original Medicare, and some of these policies provide more comprehensive coverage. You can also opt for a Medigap plan to supplement traditional Medicare. By comparing what different policies cover -- and cost -- you can either choose to pay higher premiums for more coverage or reduce premiums and get a skimpier plan if you don't use many medical services during the year. 
  • Determining if you can qualify for Medicaid. Medicaid can help you to more easily afford your care. Depending upon your income, Medicaid may provide help with Medicare premiums and coinsurance costs. Medicaid can also cover certain kinds of care Medicare doesn't pay for, such as unskilled nursing home care. 

It's up to you to find ways to keep healthcare costs as low as possible if you don't want to lose a third -- or more -- of your Social Security benefits to healthcare costs. 

Healthcare is expensive -- so make a plan

The new data from the CRR makes clear just how much of your money will be eaten up by healthcare. Experts have been warning for a long time that seniors will need a lot of money to pay for their care.

The sooner you start making a plan for taking care of your health needs as a senior, the more easily you'll be able to afford them without skimping on everything else you'd hoped to spend money on during retirement. 

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