Majority of Social Security Benefits Eaten Up by Health Care Costs

[Big_Hitter]

"Unexpected health care costs and other life events have 23% of retirees—those retired 10 years or less—wishing they had waited before collecting Social Security, according to a survey by the Nationwide Retirement Institute. Thirty-seven percent of retirees say health problems keep them from living the retirement they expected, and 80% of recent retirees say health problems occurred earlier than they had expected."

Majority of Social Security Benefits Eaten Up by Health Care Costs | PLANSPONSOR

 

[dixonge]

So if you are hit by big health care costs (up to 61% of your benefit) what happens if you *don't* have any SS income? If you have deferred, how exactly do you pay those health care costs?

 

[MichaelB]

So if you are hit by big health care costs (up to 61% of your benefit) what happens if you *don't* have any SS income? If you have deferred, how exactly do you pay those health care costs?

Good point. The study behind the article wasn't linked so it's hard to draw actionable conclusions, but the target audience is financial planners.

 

[Independent]

Yep, I hate these articles that don't link to the source.

I'm guessing that this is it: https://nationwidefinancial.com/media/pdf/NFM-14532AO.pdf

If so, the article fumbled the translation.

17% of people who have been retired less than 10 years say they wish they had waited longer to start SS.
25% of people who have been retired more than 10 years say they wish they had started later.

For the follow-up question on "Why would you start later?", 80% of responses were a generic "Wanted the largest benefit possible". No specific mention of health care.

Regarding health problems, we get a kind of odd result. For people who have been retired at least 10 years:
73% said they were able to do the things they wanted in retirement, but
40% said health problems keep them from living the retirement they expected.

Of those experiencing health problems:
67% say those problems came sooner than expected, often more than 5 years sooner.

(Similar answers for those retired less than ten years: 63%, 39%, and 85%)

The survey has no support for the claim that 61% of SS benefits go to health care costs. If the average retiree who claims at 62 gets $1,000/mo, that would convert to monthly health care costs of $600. Seems high to me.

(and also "If you have deferred, how exactly do you pay those health care costs?")

 

[Senator]

So if you are hit by big health care costs (up to 61% of your benefit) what happens if you *don't* have any SS income? If you have deferred, how exactly do you pay those health care costs?

You do not pay it. It's a program called medicaid.

 

[Independent]

You do not pay it. It's a program called medicaid.

I assumed that this article and the quotes were aimed at people well above the poverty level, who had savings.

For them, deferring SS means spending down savings. That may or may not be optimal for them (as many threads on that topic show), but the fact that some of their money will be used for medical expenses isn't normally a big factor in that decision.

OTOH, in states that took the ACA Medicaid expansion, it seems possible to arrange your finances to report income below 133% of FPL and qualify for Medicaid even though you have substantial assets. You could even be spending at a "middle class" pace by withdrawing from after tax accounts. I suppose that is discussed in some of the ACA threads.

 

[Options]

Also see this from J.P. Morgan. I find it interesting they are projecting 7% future healthcare expenses inflation at the same time Fidelity's RIP tool just lowered their estimate to 5.5%.

https://am.jpmorgan.com/us/en/asset-management/gim/per/insights/guide-to-retirement