It’s not a secret that healthcare is a major expense for seniors. In fact, for many retirees, it’s their single greatest monthly expense. But new data from the Senior Citizens League reveals that older Americans are spending an uncomfortably large chunk of their income on medical expenses, and it’s apt to be hurting them in a very big way.
What are seniors spending on healthcare?
A big reason healthcare constitutes such a burden for seniors is that its cost continues to outpace Social Security benefit increases. Medicare Part B premiums, for example, tend to rise every year, as do other out-of-pocket expenses that seniors are forced to bear. The problem, however, is that 48% of older households have no income outside of Social Security, and so they’re forced to allocate a large chunk of their limited funds to an expense category that continuously seems to rise.
Here’s what seniors are spending on healthcare costs today on a monthly basis:
|Monthly spending on healthcare||Percentage of retirees who spend that much|
Given that the average monthly Social Security benefit today amounts to just $1,523, to spend $375 or more of it on healthcare puts seniors at risk of falling behind on other bills. And unless lawmakers step in to address the issue of healthcare inflation, the problem is only likely to get worse over time.
Avoiding a healthcare cash crunch later in life
Unfortunately, today’s seniors — particularly those who rely heavily on Social Security — may be stuck in a loop where their healthcare costs continue to rise while their monthly income largely remains stagnant. But if you’re still working, you do have an opportunity to address the problem of rising healthcare costs ahead of retirement.
For one thing, you can ramp up your retirement plan contributions. The more money you have available in an IRA or 401(k) plan, the less reliant you’ll be on Social Security, and the more options you’ll have for covering all of your senior expenses, healthcare included. Annual IRA contributions currently max out at $7,000 for savers aged 50 and over, while 401(k) contributions max out at $26,000. If you’re under 50, you’ll be limited to $6,000 in contributions for this year’s IRA, and $19,500 for a 401(k).
Another option is to contribute to a health savings account (HSA) if you’re eligible. To participate, you’ll need to be enrolled in a high-deductible health insurance plan, but if your plan qualifies, you’ll get to set aside funds you can withdraw immediately for near-term medical expenses, or save, invest, and carry all the way into retirement, when healthcare could otherwise eat up a ridiculously large chunk of your income. This year, HSA contributions max out at $4,600 for self-only coverage and $8,200 for family coverage if you’re at least 55. If you’re younger, you’re limited to $3,600 or $7,200, respectively.
There’s no avoiding healthcare costs at any stage of life, but during retirement, they can be even more burdensome. HealthView Services, a cost projection software provider, estimates that healthcare will cost the average 65-year-old couple leaving the workforce this year $662,156 throughout retirement. If you’re still holding down a job, do your best to set aside funds to cover your future expenses. That way, you’ll avoid the cash crunch so many of today’s seniors grapple with on a regular basis.