The bump-up in next year's Social Security benefits has officially been determined. However much recipients are receiving right now, come January, their base payments will be 2.8% bigger, more or less aligning with 2025's inflation rate.
The only problem? That cost-of-living adjustment (or COLA) won't be big enough.
That's the collective opinion of the 2,000 retirees that the Motley Fool's own in-house research surveyed, anyway. More than two-thirds of them said this COLA will provide little to no net help in terms of covering the actual increases in their cost of living over the past year, and one category of expenses stood out as the source of the most budget pain.
And you can probably guess what that category is.
Painful numbers
Sure, every American household would like to have a little more money every month, if only to pay for a visit to a restaurant or buy tickets to a ballgame that wouldn't otherwise be in the budget.
That's not quite what retirees are getting at, however. Their complaints are a little more legitimate. See, their already-high healthcare costs are heading even higher in a hurry.
Data from the Bureau of Labor Statistics puts things in perspective. When including health insurance costs (since Medicare isn't free and doesn't come close to covering everything), as of 2023, the average U.S. household that includes people aged 65 and up spent a little more than $8,000 per year on healthcare compared to a nationwide average of just over $6,000. That's about 12% of the typical senior's household income, by the way, compared to only about 6% for the overall average household.
And the disparity worsens when you consider the number of people living in these households. See, the average U.S. household is home to 2.5 people, but the average within retirees' homes is only 1.7, only 1.4 of which are people actually over the age of 65! On a per-capita basis, U.S. senior citizens spend well over $4,000 per year apiece on healthcare, or nearly twice the nationwide average of about $2,400 per person. Also bear in mind that retirees' incomes and budgets are typically measurably smaller than workers' incomes.
Image source: Getty Images.
These already steep healthcare costs for retirees are only apt to worsen in the near future, too. Citing a calculation from the nonprofit advocacy group Social Security Works, Motley Fool senior retirement advisor Robert Brokamp points out, "premiums for Part B of Medicare are projected to go up more than 11% in 2026," adding "that will take out a bigger chunk of a beneficiary's monthly check."
That's a sizable premium hike, but it's not as if retirees aren't accustomed to those. The Bureau of Labor Statistics' 2023 estimate of $8,000 for seniors' annual household healthcare spending was 60% more than the comparable estimate from just 10 years earlier. That's an average annualized cost increase of about 4.8%, which well outpaced the general inflation rate during that decade. This is the norm now.
A little help, but only a little
It's not all bad news for retirees who rely on Social Security payments to cover a big piece -- if not all -- of their living costs. For instance, Medicare Part D's cap on out-of-pocket drug costs has been lowered to $2,100 per year.
The cost of several important pharmaceuticals like Bristol Myers Squibb's blood thinner Eliquis and Immunex's arthritis treatment Enbrel will also be coming down at least a little bit beginning next year, thanks to the Inflation Reduction Act of 2022, which allowed Medicare to negotiate lower prices on some prescription drugs. More price cuts are anticipated to come next year as well, which could potentially lower seniors' net healthcare costs.
Nevertheless, it's still a bit of a race. Although seniors will get some relief on some fronts, on others, rising costs continue to meaningfully outpace the general inflation rate. The out-of-pocket cost for a routine trip to the doctor's office, for example, continues to soar. If you're one of the nation's 58 million retirees currently receiving Social Security benefits, you're probably going to continue feeling the pinch of rising healthcare costs.
What can you do about it? Unfortunately, there's no single sweeping action you can take that will result in a major change in this situation. There are, however, several small things you can do that can collectively make a big difference.
Explore your options, and do a little math
One option involves taking a thorough look at all of your Medicare coverage options and making new decisions before open enrollment ends on Dec. 7, including potential changes to your drug coverage. If you've got reason to believe you're going to need more than an average amount of care in the year ahead, you may find it makes more financial sense to pay a higher premium for more extensive coverage.
Also note that some preventive care services are completely free for those on Medicare. The program is willing to fully cover some costs that allow doctors to spot potential health problems earlier, as that ultimately lowers its net costs. These free services include mammograms, nutrition consultations, many vaccinations, and more.
That being said, perhaps the most effective means of dealing with the ever-rising costs of healthcare as you age is just ensuring that you've got enough retirement income to cover whatever price hikes are on the horizon. While it may be too late to add money to your retirement nest egg, you may be able to get a bit more out of what you've got by doing simple things like keeping more of your cash in a higher-yielding money market account rather than in a checking account that pays you next to no interest. Swapping out weaker dividend stocks or bonds with higher-yielding alternatives might also make a meaningful difference.
No matter what your situation is, reviewing all of your options and doing a bit of pencil-and-paper work would be time well spent, even if it only nets you a few extra hundred bucks per year. You may find, however, you're able to free up more money than you might have guessed before you started doing the work.
