65-Year-old Couples Need Anywhere From $182,000 to $361,000 to Pay for Health Care Expenses in Retirement: EBRI

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After declining in 2020, the predicted saving targets for Medicare beneficiaries to cover health premiums, deductibles, and certain other health expenses in retirement increased between 3 and 8% in 2021, according to EBRI’s just-published report. These are close to the biggest increases we have seen since 2012.

Savings are needed to pay for premiums for Medicare Parts B and D, the Part B deductible, premiums for Medigap Plan G, and out-of-pocket spending for outpatient prescription drugs, according to Paul Fronstin Jack VanDerhei, the authors of the report.

According to a release, the data used in EBRI’s analysis come from a variety of sources. EBRI employs a Monte Carlo simulation model for this evaluation that simulated 100,000 observations, allowing for the uncertainty related to individual mortality and rates of return on assets in retirement.

The analysis reveals:

  • In 2021, a 65-year-old man needed $79,000 in savings and a 65-year-old woman needed $103,000 in savings for a 50% chance of having enough to cover premiums and median prescription drug expenses in retirement. For a 90% chance of having enough savings, the man needs $142,000 and the woman needs $159,000. This is up 9% from 2020.
  • For a 50% chance of having enough to cover health care expenses in retirement, a couple with median prescription drug expenses needed $182,000 in savings. For a 90% chance of having enough, the couple needed $296,000 in savings. This is up 10% from 2020.
  • At the extreme — a couple with drug expenses at the 90th percentile throughout retirement who wants a 90% chance of having enough money for health care expenses in retirement by age 65 — targeted savings were $361,000 in 2021. This is higher than the $325,000 required in 2020.
  • The increases identified in this paper are due to a number of reasons. The Medicare Trustees increasing projected costs for Medicare Part D out-of-pocket expenses is one reason for the increase. Another reason is the substantial increase in the Medicare Part B premium.

What say experts in response to EBRI’s research?

For his part, Jae Oh, author of Maximize Your Medicare, noted that the research presumes the Medicare beneficiary will use a Plan G Medigap policy throughout retirement. And that may not be the case for everyone. He noted, for instance, that Plan G premiums can be greater than the out-of-pocket maximum for Medicare Advantage Prescription Drug (MAPD) PPO plan, today. “For those with ample resources, they pay up for the higher cost of Medigap,” he said. “For those that lack resources, it is financially efficient to go to $0 MAPD PPO. The savings, $2,400 can then be used to pay for the out-of-pocket maximum.

He also noted that demographic pressures are likely to change Medicare and costs are likely to change in the future. “Not overnight, but in small doses, yes,” he said.