Social Security benefits are an important source of retirement income for millions of Americans, but unfortunately these benefits may not go nearly as far as you think.
In fact, troubling new data from the Senior Citizens League suggests that almost a fifth of your entire monthly benefit check could be eaten up by prescription drug costs alone. It's important to plan for this reality as a future retiree, and to take steps to keep these outsized costs down if you've already reached retirement and are depending on your Social Security checks to help you make ends meet.
Prescription drugs could cut deeply into your Social Security checks
According to the Senior Citizens League, out-of-pocket costs seniors paid for prescription drugs came in at an average of $3,875 per year in 2019. For those receiving the average Social Security benefit, which was $1,519.07 for retired workers as of September 2020, that means medications could take up about 20% of the $18,228.84 in Social Security benefits received each year. Obviously, spending a fifth of your annual income on one big expense is not going to leave you with much left over to cover other essentials, including any other healthcare that you may require over the course of the year.
To make sure you don't end up with too little to live on, it's important to have plenty of savings to supplement your Social Security -- ideally, including some money in a health savings account (HSA), which allows you to take tax-free withdrawals to pay for medical costs, including eligible prescriptions. Making sure you've saved enough for your medications and other health needs is a lifelong project, so to be fully prepared, you need to factor in healthcare spending when setting retirement savings goals.
If you're already in retirement, however, it may be too late for you to build a dedicated investment account in which you specifically set aside money you can use for your healthcare. If you're in that position and find that your prescription medication costs and other health expenditures are causing you to withdraw too much from other retirement money or leaving you with too little Social Security, you'll need to get creative.
First and foremost, you should make sure you have the right Medicare coverage. Open enrollment is approaching, and you may find it makes sense to switch to a Medicare Advantage plan or a more comprehensive Medicare Part D prescription plan to try to lower your out-of-pocket costs. Paying higher premiums may be worth it if it makes your prescription drug expenses both more predictable and less expensive during the course of the year.
You should also talk with your doctor if you're having problems affording prescriptions. Your doctor may be able to switch you to a generic medication or other less costly drug, might be able to provide manufacturer coupons or samples to cut your costs, or could potentially help you explore other ways to reduce your expenses so they're not such a burden on your budget.
Of course, you can't always count on your provider finding cost-cutting solutions, so it's best to make sure you aren't reliant on this. Do that by saving as much as you can for medical care throughout your working life, and by both getting the right insurance coverage and making a detailed budget as a retiree that gives you the funds you need for your prescriptions without leaving too little for other necessities.