Soon You Won’t Be Able to Afford Health Care in Retirement

It’s no secret health care is one of the biggest expenses in retirement. Our medication costs continue to rise, and the out-of-pocket costs for other preventative services are astronomical.

For more insight on just how hard it will be to afford health care in retirement, HealthView Services dug into the details to quantify what new and future retirees will have to endure moving forward. Its health care data report for 2017 makes some bold predictions.

Over time, health care costs could exceed Social Security payments. And when we really break it down, it’s clear most of us won’t be able to afford that once it happens. Let’s go over why that is and review a few recommendations for how to combat such an uphill battle.

1. Health care costs are rising faster than inflation

frustrated woman in car with head in hands

When we break it down, it’ll be hard to afford health care. |

The bread and butter of this report calls out the hard truth regarding the future of retirement and health care expenses. According to HealthView Services, health care costs will rise at an average annual rate of 5.47% for the foreseeable future — which is almost triple the U.S. inflation rate from 2012 to 2016 of 1.9%. To put it in context, if a 65-year-old couple retired today, they would spend $28,954 more in total lifetime retirement health care expenses than a couple who retired in 2016.

Next: The facts about Social Security aren’t much better.

2. Health care costs are rising faster than Social Security

worried couple looking at bills

Between inflation and Social Security, the numbers just don’t add up. |

But maybe you can wait to withdraw Social Security until you’re worth more, right? Wrong. Although it might help stop the bleeding, it won’t be enough to completely heal the wound. Social Security cost of living adjustments are projected to rise by 2.6% annually. But health care costs are expected to inflate by 5.47%. And when we acknowledge that Social Security is a main source of income for retirees, the future’s not so bright.

Next: The real numbers of health care

3. Health care will cost over $300,000 at least

figurine looking at stacks of coins

Health care will cost hundreds of thousands of dollars. |

Health care will be one of the most significant retirement costs. HealthView Services predicts lifetime health care premiums will hit $321,994 for a healthy 65-year-old couple who retire in 2017. This includes Medicare Parts B and D, supplemental insurance, and dental. But these estimates are just a starting point. When adding deductibles, copays, and other out-of-pocket costs into the mix, that number grows to a stifling $404,253 in today’s dollars.

Next: The fate of women everywhere

4. Women will face higher costs than men

Tense woman sitting in bed

The fate of women in retirement looks dismal. |

Another sad fate is women will face higher lifetime health care costs because they are expected to live on average two years longer than men. A healthy 63-year-old women who retires in 2017 and lives to age 89 will need to spend $362,607 in future dollars for her care when all is said and done. That’s almost 30% more than what a 65-year-old retiring man would spend, according to the report.

Next: A prediction most medical professionals got wrong

5. Medicare Part D premiums were projected to decrease, but they rose instead

A pile of burning money

Premiums increased, not decreased, as expected. | NRCC

Employees who enroll in Medicare in 2017 will pay $134 per month for Part B premiums, up from about $121 in 2016. HealthView Services notes the Medicare Board of Trustees predicted premiums would decrease by 24%. Instead, premiums increased by 10%. But the board estimates a 1.3% decrease in 2018, according to the report.

Next: The biggest health care expense in retirement

6. Prescription drugs will drain your budget

American flag made of pills

Prescription drugs will drain your savings. | Samuel Goldwyn Films

Anyone who makes regular trips to the pharmacy can educate the masses about the rising costs of prescription drugs. The Congressional Budget Office will spend almost $94 billion on Part D benefits in 2017. And due to such a high inflation rate, a higher portion of your expenditures will be allocated to medication.

In 2010, prescription drug benefits represented 12% of all Medicare expenses, but they account for over 15% in 2017. HealthView Services predicts by 2027 prescription drugs will represent 27% of all Medicare-related expenses. In comparison, hospital and doctor visits will equal 30%.

Next: The cons of a longer lifespan

7. A longer lifespan will be expensive

caregiver assisting a woman with a walker

A longer lifespan means more expenses. | Carsten Koall/Getty Images

We have advanced medicine and increased societal awareness to thank for our rising life expectancy. We should also thank science for draining our retirement savings as a result. HealthView Services drew upon actuarial data to estimate men will live to age 87 and women to age 89. When it assumed each person would live two years beyond their average life expectancy, it predicted a couple would have to pay an extra $49,210 in today’s dollars to fund all health-related retirement costs.

Next: See just how far your Social Security payment will take you.

8. Don’t expect Social Security to go very far

Social Security newspaper scrap on money

A good chunk of Social Security is eaten up by health care costs in retirement. |

Sorry to burst your bubble, but if you were planning to use your Social Security money on a cross-country road trip or to fund a new retirement hobby, you might need to re-evaluate. The HealthView Services report shows a 66-year-old couple retiring in 2017 will need 59% of their Social Security benefits to cover all retirement health care costs. That doesn’t leave much left over for the fun you’ve been dreaming of.

When using the 2017 average Social Security benefit based on a primary insurance amount of $2,268 per month, Medicare premiums will require 40% of a couple’s total Social Security income at age 70.

Next: These are the most expensive years of your life.

9. Your last 2 years will be the most expensive

two old friends laughing

Your last years are the most costly. |

Retirees must formulate a plan to fund their last two years, as those years are typically the most expensive. These are the years that beckon more frequent doctor visits and a greater use of health care services overall. When HealthView Services continued with its retirement study, it found couples would incur an additional $14,804 in health care expenses during their last two years of life. This number might seem manageable, but these expenses usually occur during a time when most people’s savings have already been depleted, making it harder to fund.

Next: How much will long-term care cost?

10. Let’s not forget to factor in long-term care

elderly woman with nurse

Long-term care is often an unexpected and expensive cost. | Patricia De Melo Moreira/AFP/Getty Images

Although the HealthView Services report doesn’t delve into long-term care costs specifically, nursing home stays steal a massive chunk of retired income, even though many forget to factor in the added expense. Monthly expenses can range anywhere from $1,500 to $7,700, depending on the level of care needed. Many think they can rely on friends and family to provide support, but once the burden becomes too big, retirees are forced to seek costly professional help.

Next: Here’s how much you have to save every year to afford health care.

11. You’ll have to save almost $11,000 per year to afford health care

people on giant $100 bill

Health care is an investment. | Kazuhiro Nogi/AFP/Getty Images

Now, all these scary numbers and predictions beg the question: How much will you need to save to fund such an extravagant expense in retirement? HealthView Services crunched the numbers. A 55-year old man with over $425,000 in expected future health care bills must invest $84,242 over the next 10 years, or just under $11,000 per year.

Next: Before you panic, let’s break it down even further.

12. It’s actually not that risky day to day

woman staring at coins in jar

Small, daily contributions help. | Thinkstock

Here’s where we start to mention the good news. When you break it down a bit more, the saving requirements don’t seem so outlandish. If this 55-year-old consistently contributed to an IRR savings plan at a 6% return, total health care costs could be covered with just a $77.50 contribution per pay period. A lump sum amount would equal $3,022 annually — a reasonable price to pay for retirement peace of mind.

Now that you’re thoroughly stressed out, let’s address a few ways you can weaken some of these pressing financial burdens.

13. Modifying behavior will decrease expenses

Businessman having a vegetables salad for lunch

Change your lifestyle, and enjoy a better retirement. |

Managing your health conditions consistently over time will not only increase life expectancy, but reduce out-of-pocket costs during retirement. HealthView Services analyzed how managing Type 2 diabetes would make health care more affordable. In its report, someone who committed to small lifestyle changes, such as stopping tobacco use, maintaining cholesterol, and practicing a healthier lifestyle, could save over $5,000 before retirement.

When that same individual invests these savings into a fund with a 6% return, they’d have about $120,000 by age 65. This would translate into roughly an extra $14,000 per year.

Next: It’s all about the plan, Stan.

14. Commit to a long-term savings plan

savings piggy bank

Start saving now. |

Those who start saving for retirement early will find it’s much more manageable to maintain their preferred lifestyle and pay for necessary expenses simultaneously. As we saw in the HealthView Services report, even the smallest contributions can make a big impact throughout a lifetime. Future retirees must take advantage of employer contribution plans and additional investment strategies to make the most of their savings plans.

Next: How shopping for medications can help save you money

15. Save on prescriptions

pill bottle spilling

Be a savvy shopper. | Common Radius Films

Because prescription drugs are a major piece of the retirement expense pie, it’s worthwhile to take extra measures to trim the fat on those costs. Ask your doctor about generic options as they can cost 85% less than name-brand drugs. Budget-conscious planners can also pinpoint their preferred pharmacies, shop around for the lowest fees in town, and inquire about copay assistance programs that are sometimes offered by manufactures to help reduce costs.

Follow Lauren on Twitter @la_hamer.

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