Source:Center for Retirement Research at Boston College (2026 Update)

Author:Matthew S. Rutledge

Dataset: Health and Retirement Study (2018–2022 waves)

This is not anecdotal commentary. It is nationally representative longitudinal data across multiple years — including the COVID shock period — making it one of the most credible analyses available on retiree medical burden.

EXECUTIVE INSIGHT

At the median:

• Only 71% of Social Security income remains after medical out-of-pocket (OOP) costs
• Only 88% of total retirement income remains after OOP costs.

That means nearly 1 in 3 dollars of Social Security is effectively pre-committed to healthcare.

And for the most vulnerable retirees?

• The bottom 5% are left with virtually nothing from Social Security after medical spending.

That’s not inconvenience. That’s structural erosion.

THE CORE FINDINGS

1. Medical Costs Are Not Marginal — They Are Structural

The median retiree spent $5,444 in 2022 on medical OOP costs.

That includes:

• Medicare Part B premiums
• Part D premiums
• Medicare Advantage premiums
• Supplemental insurance
• Cost sharing
• Uncovered services (dental, vision, hearing)

And importantly:

Premiums — not catastrophic illness — are the largest component for most retirees

This is key. The burden isn’t just rare events. It’s built into the system.

2. Stability Masks Vulnerability

From 2018 to 2022 — including pandemic years — OOP costs remained stable in real terms.

That sounds comforting.

But stability at a high baseline means:

• The system is consistently consuming income
• Retirees never get breathing room

And this stability occurred before:

• Full IRA drug reforms
• 2025 Medicaid changes
• Social Security trust fund stress

In other words: the equilibrium may not hold.

3. The Post-OOP Ratio Reveals True Retirement Purchasing Power

This study introduces what may be the most important metric:

The Post-OOP Ratio

Income remaining after medical spending.

At the median:

• 71% of Social Security remains
• 88% of total income remains

But distribution matters:

• Bottom 10% retain only ~25% of Social Security
• Bottom 5% retain near zero

The political debate focuses on gross benefit levels.

The lived experience is net-of-medical reality.

4. Health Status Matters Less Than Income — Surprising Insight

You might assume poor health radically lowers the post-OOP ratio.

It does — but not dramatically.

The more powerful determinant?

Income quintile.

• Highest quintile retains ~94% of total income
• Lowest quintile retains ~82% (and only 76% without Medicaid)

Medicaid is the swing factor.

Remove it, and vulnerability spikes.

5. Supplemental Insurance Type Changes Outcomes

Median share of Social Security remaining after OOP:

• Medicaid: ~96%
• Medicare-only: ~74%
• Medicare Advantage: ~72%
• Retiree Health Insurance: ~58%

Why does RHI look worse on Social Security basis?

Because those retirees have higher total income — and pay higher premiums.

When measured against total income, differences narrow.

This reinforces a key point:

Premium structure, not just coverage generosity, determines net retirement security.

6. Inflation Reduction Act Changes Are Still Rolling In

Future modifications include:

• $35 insulin cap (2023)
• 5% catastrophic coinsurance elimination (2024)
• $2,000 OOP cap (2025)
• Drug price negotiation (2026)

These may reduce pressure — but political uncertainty remains.

Policy tail risk is real.

STRATEGIC IMPLICATIONS

Now let’s zoom out — because this matters in ways retirees rarely articulate.

1. Social Security Replacement Rates Are Overstated

If 29% of benefits go to medical costs, then:

A 40% replacement rate is effectively:

→ 28% real consumption replacement

That’s a silent compression of retirement lifestyle.

2. Healthcare Is a “Quasi-Tax” on Aging

Medical premiums function like a non-discretionary tax.

Except:

• It rises with income (IRMAA surcharges)
• It rises with age
• It rises with policy shifts

This makes retirement income planning incomplete without health cost modeling.

3. The Middle Class Is Most Exposed

The poorest are protected by Medicaid. The wealthy absorb costs.

The squeeze sits in the near-poor and middle quintiles.

And that cohort:

• Often relies heavily on Social Security
• Lacks defined benefit pensions
• Has limited buffers

4. Longevity Risk + Healthcare Risk Compound

Even though annual OOP spending looks “stable,”:

Longer lifespans mean:

• More cumulative exposure
• Greater risk of late-life cost spikes
• Increased vulnerability to long-term care (not included in this analysis)

This paper excludes long-term care — which can be catastrophic.

So the 71% figure is conservative.

OUTCOME: What This Means Going Forward

For Policymakers

• Evaluating retirement adequacy without net-of-medical analysis is incomplete.
• Social Security debates must incorporate OOP burdens.
• Medicaid is a stabilizer — removing it increases fragility.

For Financial Advisors & Family Offices

When evaluating retirement resilience — especially within legacy frameworks — one must:

1. Model healthcare as a structural expense, not volatility.
2. Segment clients by insurance structure.
3. Stress-test post-OOP ratios.
4. Integrate drug policy changes into cash flow modeling.
5. Separate discretionary vs nondiscretionary cash flow.

Healthcare erosion is a silent destroyer of multi-generational planning if not embedded into modeling.

For Retirees

The uncomfortable truth:

Gross income is not purchasing power.

Net-of-medical income is.

And for many retirees:

• Nearly 30% of Social Security is spoken for.
• The bottom 10% live on financial knife edges.

That explains why affordability anxiety remains high — even when benefits technically “rose.”

Final Insight

The paper concludes that retirees’ finances are more precarious than headline income levels suggest.

That is the understated line.

The deeper takeaway:

Healthcare costs quietly redefine retirement adequacy.

Not through dramatic shocks — But through steady structural erosion.

And that makes this issue more dangerous than volatility.