Our Thoughts

Retirement Health Expenses On the Rise

recent study by the Employee Benefit Research Institute (EBRI) warns that Americans should be concerned about saving for health insurance premiums and out-of-pocket expenses in retirement. 

Since 2011, the amount of savings Medicare beneficiaries are projected to need to cover program premiums, deductibles and certain other health expenses in retirement have risen by as much as 9%, according to EBRI’s issue brief.  

In the report, “Savings Medicare Beneficiaries Need for Health Expenses: Some Couples Could Need as Much as $400,000, Up From $370,000 in 2017,” EBRI examines the savings needed to pay for premiums for Medicare Parts B and D, premiums for Medigap Plan F and out-of-pocket spending for outpatient prescription drugs. 

Medicare generally covers only about two-thirds of the cost of health care services for Medicare beneficiaries ages 65 and older, while out-of-pocket spending accounts for 12% and private insurance covers 15%, the brief explains. Contributing to the rising expenses is the declining percentage of private-sector establishments offering retiree health benefits, the rising price of prescription drugs and additional changes to Medicare coming. 

The report predicts that issues surrounding retirement income security will pose an even greater challenge, as policymakers begin to address financial issues in the Medicare program with solutions that may shift more responsibility for health care costs to Medicare beneficiaries. 

The report estimates that in 2018 a 65-year-old man will need $75,000 in savings and a 65-year old woman will need $99,000, 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 $148,000 and the woman needs $161,000, according to the study. The differences in estimates between men and women relate to women having longer life expectancies than men, hence the need for larger savings levels to cover premiums and expenses. 

For a 50% chance of having enough to cover health care expenses in retirement, a couple with median prescription drug expenses needs $174,000 in savings. For a 90% chance of having enough, the couple needs $296,000 in savings, EBRI’s data shows. 

At the extreme, it notes that for a couple both with drug expenses at the 90th percentile throughout retirement who wanted a 90% chance of having enough money saved for health care expenses in retirement by age 65, the targeted savings increased from $368,000 in 2017 to $399,000 in 2018 — an 8% increase. 

“It’s important to note that many Americans will likely need more savings than cited in this report,” explains Paul Fronstin, Ph.D., Director of the Health Research and Education Program at EBRI and co-author of the study. 

Fronstin further cautions that the analysis does not factor in the total savings needed to cover long-term care expenses and other health expenses not covered by Medicare, nor does it take into account the fact that many individuals retire before becoming eligible for Medicare.