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Report: Medicare Costs Can Consume 1/3 of Social Security Income

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A new study just released by the Center for Retirement Research at Boston College provides some sobering news for many future retirees who will be relying entirely – or mostly – on Social Security for their retirement income.  If you are an average Social Security beneficiary, Medicare premiums for Parts B and D, plus average out-of-pocket medical spending, are going to eat up just over one-third of your benefits over the course of a year. That means a huge number of retirees may have a lot less money to live on than they anticipate.

We read about this study in this very recent article that appeared a few weeks ago on the website of USA Today. The title doesn’t really tell the whole story: the article is called “What retirees can do to reign in out-of-pocket spending.” At first we thought this was simply another article about the importance of proper budgeting, but the opening sentences changed our minds. “What percent of your Social Security benefit remains after spending whatever you spend out-of-pocket for health care, including premiums for Medicare Parts B and D?” asked USA Today author and Wall Street Journal contributor Robert Powell. His answer? “Not much.”

In their analysis, researchers from the Boston-based Center for Retirement Research looked at average out-of-pocket spending for Medicare beneficiaries who pay premiums for Part B (regular medical expenses other than hospitalization) and Part D (prescription drugs).  For the average senior on Medicare, the total out-of-pocket outlay was $4,274 annually (based on 2014 figures). About two-thirds of that total (just under $3,000) is spent on premiums. According to the study as quoted by the USA Today’s Powell, the average retiree had less than two-thirds of his or her Social Security benefits remaining after out-of-pocket costs were accounted for. Even worse, for the lowest-income seniors – almost one retiree in five – Medicare out-of-pocket spending devoured more than half of their Social Security income.

In raising the alarm about the difficulty many retirees find in making ends meet, the Boston College report doesn’t sound very optimistic about the future. “Things are likely to get worse rather than better for retirees,” writes the USA Today article. In the words of the report’s authors, “Medicare spending per beneficiary is expected to resume its decades-long rise by the end of the decade, which will put even more pressure on retirees’ budgets.” With this in mind, Robert Powell emphasizes, it’s imperative that seniors find ways to control their out-of-pocket medical spending. Writing in the USA Today article, he lists several ways this goal might be accomplished.

One excellent way to start is to make sure a senior is enrolled in every benefit program for which he or she might be eligible – including low-income seniors who can receive benefits from both Medicare and Medicaid. These individuals, according to the Centers for Medicare and Medicaid Services, are called “dual eligible beneficiaries.”  As the article in USA Today points out, for low-income, low-asset households who qualify as dual eligibility beneficiaries, the out-of-pocket costs for medical care can be reduced to almost zero, yet many eligible seniors fail to apply.  (Here’s a link to a CMS web page that describes this program in more detail. Note that benefits vary by state so you will definitely want to seek professional advice to get the full story. Contact us at AgingOptions and let us explore your benefits more thoroughly with you.)

The next piece of advice from USA Today, especially timely in these waning days of open enrollment, is to shop wisely for your Medicare coverage. But beware: often the plans with the lowest premium cost can leave you high and dry if your needs change. “You should weigh your own personal circumstances as best you can or with some help from a professional,” says the Robert Powell article. Once again, we invite you to attend one of our free AgingOptions LifePlanning Seminars where we can answer many of your questions. You will also find free help through statewide resources called State Health Insurance Assistance Programs, or SHIPs.   Here’s a link to the Health Insurance Assistance Program in Washington State.

We definitely agree with another of Powell’s recommendations for cutting your medical expenditures, and that involves becoming an empowered and informed patient. “The onus is now on patients for controlling spending,” he states. “Learn how to challenge all the unnecessary tests and care that is given.” Don’t just blindly agree to tests, scans and x-rays without insisting that your doctor explain exactly why they are needed, because it’s a virtual certainty that you will end up paying for a portion of these mounting and often unnecessary costs. The same goes for new or altered prescriptions: find out why the new meds are needed and for how long, and insist the doctor find the least expensive alternative. In many cases lifestyle changes can work just as well as a new prescription and the out-of-pocket cost for healthier living is typically zero.

Of course, as we at AgingOptions always advise those we counsel, none of this planning should take place in a vacuum. The USA Today article is talking about medical care, but that is only one facet of retirement: a truly comprehensive plan must also help you preserve your assets while avoiding becoming a burden to those you love. That means a fully developed financial plan, a carefully crafted legal strategy, and a well thought-out approach to your housing needs and desires belongs in your plan, combined with a means to involve your family members in the planning process. This is why our clients are so enthusiastic about a LifePlan from AgingOptions, the only plan that blends financial, medical, legal, housing and family strategies into one blueprint.

Please take a bit of time and accept our invitation to find out more at an upcoming AgingOptions LifePlanning Seminar with Rajiv Nagaich. We assure you, you’ll be very glad you did.  For a complete listing of currently scheduled LifePlanning Seminars, click here for our Upcoming Events page where you can register for the free seminar of your choice – or if you prefer you can contact us by phone during the week. No matter where you are in the retirement planning process, LifePlanning can benefit you. We’ll look forward to meeting you soon.

(originally reported at

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