A few months ago, I wrote about a major retirement expense that rarely attracts much attention—the high cost of insurance coverage. Whether it’s premiums for Medicare Part B, for supplemental health coverage plans, drug coverage, long-term care insurance, auto insurance or homeowners/renter’s insurance, the total is often surprisingly high. And it’s getting higher.
In 2026, those costs will rise to a degree that may make many retirees rethink their spending habits and income needs.
Let’s start with Medicare Part B premiums. While the Social Security Administration recently announced that benefits will go up by 2.8% for 2026, the cost of Medicare Part B premiums have yet to be made public. Guesstimates peg the increase at 11.6%, with greater increases for those whose income pushes them into one of the IRMAA (Income-Related Monthly Adjustment Amount) brackets. Since Medicare premiums are deducted from monthly Social Security benefits right off the top, many retirees probably will be surprised when their monthly income takes a hit in January.
Even if advisory clients don’t depend on Medicare and Social Security to the same degree as millions of lower-income retirees, the medical protection and income they provide remain very important. It’s no wonder that the current government shutdown and talk about the Social Security fund’s looming depletion are only adding to the annual anxiety that accompanies the annual Medicare open enrollment period, which closes on December 7. Picking the right Medicare coverage is tricky. Should you switch to a Medicare Advantage plan that seems to offer more but comes with restrictions? Will you need the services of a doctor not in your current plan who specializes in a condition you don’t know you will come down with? Will you need medicines that are less expensive in another Part D plan? Who knows!
As Medicare expert Dr. Katy Votava said when we talked about Medicare complexity in June, “The big mistakes that people make in their Medicare decisions and choices can be very costly. Many people wind up having duplicative coverage and overspend on health insurance when they can least afford it.” Countless others, she said, have fired their advisor when they discovered that he or she hadn’t helped them with this extremely important and complicated money-related issue.
(Just a side rant: Thank goodness for Medicare, but why is it so complicated? Votava’s husband, who is a CPA and attorney, says that Medicare is more complex than the tax code! No wonder so many people just give up and take a Medicare Advantage that removes the decision anxiety).
When it comes to Medicare, my wife and I are lucky because we’re covered by her former employer’s retiree supplemental insurance plan that pays for a lot of what Medicare Part B doesn’t pay for, although not everything, as well as most prescription drug costs. This year, we paid $418 a month for that coverage, which her former employer subsidizes. We found out a few weeks ago that our costs next year will rise by 5.14%. We also learned recently that our car insurance premiums will go up by 4.8% next year. We’ll find out about next year’s homeowner’s policy increase in January, and I’m betting it’ll be greater than the CPI. Clearly, the 2.8% increase in Social Security is not going to cover all those higher insurance costs.
But wait, there’s more. Our big insurance stunner came just the other day, when we received a letter from our long-term care carrier that premiums will rise by 19% in 2026. No doubt figuring it’s best to deliver the bad news all at once, the letter informed us that our premiums will also increase annually in 2027, 2028 and 2029—by 19% each year!
The insurer offered many ways to lower our premiums, but all involved trimming coverage, which wouldn’t bring down the cost by very much. Our carrier probably wishes that we throw in the towel and exit the policy. It probably also wishes it had never jumped on the long-term care bandwagon many years ago, when it mistakenly assumed that more of us Boomers would leave this mortal coil before tapping their benefits.
My wife and I decided to keep the policy and pay the higher premiums. We’ve had the policy for almost 20 years, so why get rid of it now when our potential enfeeblement is just around the corner? We figure our two grown children will have enough on their plates taking care of our grandchildren without having to worry about the financial burden of taking care of us when we need extra help. Fortunately, we should be able to absorb the cost of the new premiums without too much strain, maybe by keeping our car an extra few years or eating out a little less.
Who knew that our big three retirement expenses would be food, shelter and insurance premiums?