You Might Spend 68% of Your Social Security Benefits on This 1 Expense

Hint: It’s an unavoidable one at that. Many seniors rely on Social Security as a critical source of income. But the reality is that those benefits generally won’t be enough to make for a comfortable retirement — especially in light of rising living costs. Take this year’s Social Security raise. Recipients were privy to a 5.9% cost-of-living adjustment (COLA) to start off 2022, but so far, the rate of inflation has well outpaced that raise, leaving seniors in a position where they’ve once again lost out on buying power. Compounding the problem is the extent to which medical inflation keeps rearing its ugly head. Healthcare is a major expense for retirees. Often, it’s their largest expense. But the costs involved keep rising. HealthView Services recently estimated that the average healthy 65-year-old couple retiring in 2021 should expect to grapple with healthcare inflation to the tune of 5.9% a year, on average. Now that happens to be in line with 2022’s Social Security COLA. But to be clear, that COLA was the most generous one seniors had gotten in years. Worse yet, based on HealthView’s most recent calculations, the typical healthy 65-year-old couple retiring in 2021 should anticipate spending 68% of their Social Security income on healthcare alone. Clearly, that leaves little money left over from those benefits for other expenses. And it also highlights the importance of saving independently for retirement rather than falling back on Social Security as a sole or even primary income source.

It takes a healthy nest egg to keep up

As a general rule, Social Security recipients who are average earners can expect their benefits to replace 40% of their pre-retirement wages. But most seniors need twice that much replacement income, especially when accounting for rising healthcare costs. That’s where personal savings come in. To avoid a financial shortfall in retirement — due to both increasing healthcare costs as well as other expenses — workers should aim to sock away 15% of their income or more in an IRA or 401(k) plan. That money should then, ideally, be invested heavily in the stock market to fuel its growth. Workers who don’t build savings of their own — or invest their savings too conservatively — risk falling short in retirement and struggling with healthcare expenses in particular. Even if a 15% or higher savings rate isn’t possible, allocating some money to a retirement plan could go a long way. Saving $500 a month over 30 years, for example, will result in a $680,000 nest egg if that money is invested heavily in stocks and generates an average annual 8% return, which is a bit below the stock market’s average.

Healthcare costs aren’t going down

Historically, healthcare inflation has outpaced the general rate of inflation, and the general rate of inflation has outpaced Social Security COLAs. Seniors hoping to retain their buying power throughout retirement will need more than just Social Security as a source of income. Those who take steps earlier in life to build a nest egg could end up sparing themselves a world of financial stress — or, worse yet, encountering a scenario where they’re tempted to skimp on medical care later in life because they just can’t afford it.