With inflation at a 40-year high, current and future retirees should expect health care costs to claim an even bigger part of their budgets, according to new research from HealthView Services, a leading provider of retirement health care cost data.
Retirees and those planning for retirement were initially pleased to see the 5.9% Social Security cost-of-living adjustment for 2022, but then were shocked to see Medicare premiums increase by 15% for the same period. The principal driver of escalating medical expenses is health care inflation, which is expected to increase over the next several years, driven by both the pandemic and historically high inflation rates.
“Even when adjusted for higher Social Security COLAs, the portion of retirement budgets required to cover health care will be significantly higher than most expect,” Ron Mastrogiovanni, founder and CEO of HealthView Services, said in a statement accompanying the new report, The Long-Term Impact of Short-Term Inflation. “Unlike other consumer goods and services, such as gasoline, health care costs historically do not increase and decrease — they only go up.”
The report draws upon 530 million medical cases and government and Medicare data to provide cost projections for retirement health care based on current inflation data. It assumes that health care inflation will continue at its historical average of 1.5-to-two times the consumer price index over a one-to-two-year period before returning to an average normalized inflation rate of around 5.9%.
The report says key drivers of health care inflation include the higher costs for goods and services faced by health care service providers, as well as higher wages for staff and traveling nurses. In addition, the demand for medical treatments and elective surgeries that were postponed during the pandemic is expected to increase significantly, maintaining upward pressure on prices.
If health care inflation is 11.85%, which is 1.5 times the current annual CPI of 7.9%, for two years, total lifetime retirement health care costs for a healthy 65-year-old couple living to their actuarial longevity would increase by $85,917 to $684,406, the report found.
Total lifetime health care spending includes Medicare Part B and D premiums, supplemental insurance and actuarially determined out-of-pocket expenses for hospitalization, visits to doctors, tests and prescriptions. All expenses are shown in future values, which reflects the impact of inflation on the actual dollar amount that retirees can expect to pay out of pocket.
Using the same inflation rate and period, an average 55-year-old couple retiring in 10 years will see costs rise by $160,712 to $1,094,460, the report projects.
“The bottom line for those planning for retirement is that health-related costs will continue to rise across the board, and they will need to save more to address these expenses,” Mastrogiovanni said. “For retirees, budgets will continue to be squeezed.”
For the average 65-year-old couple, projected total lifetime health care costs will require approximately 71% of future average Social Security benefits, based on two years of health care inflation at 11.85%, the report found. For a 55-year-old couple retiring in 10 years, the percentage of Social Security required to cover health care is 93%. These expenses do not include taxes, Medicare high-income surcharges or long-term care costs.
The report underscores the importance of financial advisers estimating future health care expenses based on individual needs and circumstances, as retirement income, years to retirement, gender, location and health conditions all have a significant impact on actual expenses in retirement.
HealthView Services has developed a simple consumer-facing calculator that enables users to estimate the impact of inflation on their potential health care expenses. The firm also provides an array of planning apps designed to help advisers create funding solutions today to cover future retirement health care expenses.
[Questions about Social Security rules? Find the answers in Mary Beth Franklin’s ebook at Maximizing Social Security Retirement Benefits]
From outstanding individuals to innovative organizations, find out who made the final shortlist for top honors at the IN awards, now in its second year.
Cresset's Susie Cranston is expecting an economic recession, but says her $65 billion RIA sees "great opportunity" to keep investing in a down market.
“There’s a big pull to alternative investments right now because of volatility of the stock market,” Kevin Gannon, CEO of Robert A. Stanger & Co., said.
Sellers shift focus: It's not about succession anymore.
Platform being adopted by independent-minded advisors who see insurance as a core pillar of their business.
RIAs face rising regulatory pressure in 2025. Forward-looking firms are responding with embedded technology, not more paperwork.
As inheritances are set to reshape client portfolios and next-gen heirs demand digital-first experiences, firms are retooling their wealth tech stacks and succession models in real time.
