To Your Health

Households relying on Social Security benefits to cover health care costs should expect medical bills to consume 61% of their Social Security payments by 2027.  

According to Fidelity Investments, a 65-year-old couple retiring in 2012 is projected to need $240,000 to cover medical expenses throughout retirement. This represents a 4% increase from 2011, when the estimate was $230,000. That $240,000 estimate, which was calculated by Fidelity’s Benefits Consulting business, excludes costs associated with nursing home care and applies to retirees with traditional Medicare insurance coverage.

The estimate has increased an average of 6% annually since Fidelity’s initial calculation of $160,000 in 2002, with the exception of 2011 when the estimate declined $20,000. That one and only decrease was due to a one-time adjustment driven by Medicare changes that reduced out-of-pocket expenses for prescription drugs for many. This year, health care expenses are rising once again.

A number of retirees rely on Social Security benefits as their primary source of income. For a couple, both aged 65,  retiring this year on a $75,000 annual household income, Social Security payments will be approximately $29,970 a year.

Fidelity compared Social Security’s average cost of living adjustment (2.3%) against an assumed average annual increase of health care costs for retirees nationally (6%). The comparison found that these 65-year-old couples with a $75,000 household income should expect that, today, 35% of their annual benefit (about $10,476) could be needed for health care expenses. In 15 years (i.e., by 2027) their allocation of Social Security benefits going toward health care expenses is likely to nearly double to 61% of a $41,205 annual Social Security payment, or to about $25,000 a year.