Amount of Savings Needed for Health Expenses for People Eligible for Medicare : More Rare Good News

This paper updates previous estimates by the Employee Benefit Research Institute on savings needed to cover health insurance premiums and health care expenses in retirement. Much like EBRI's 2012 report, this analysis finds that the savings targets for a 65-year-old retiring in 2013 were not higher than the savings targets for a 65-year-old in the previous year. In fact, these particular savings targets have continued to fall, with the decline ranging from 6-11 percent. This report discusses the model, the savings targets, and continued reasons for the decline in savings targets. In 2010, Medicare covered 62 percent of the cost of health care services for Medicare beneficiaries age 65 and older, while out-of-pocket spending accounted for 12 percent, and private insurance covered 13 percent. Individuals can expect to pay a greater share of their costs out-of-pocket in the future because of the combination of the financial condition of the Medicare program and cutbacks to employment-based retiree health programs. Because women have longer life expectancies than men, women will generally need larger savings than men to cover health insurance premiums and health care expenses in retirement post-65 when examining needed savings regardless of the savings targets. In 2013, a man would need $65,000 in savings and a woman would need $86,000 if each had a goal of having a 50 percent chance of having enough money saved to cover health care expenses in retirement. If either instead wanted a 90 percent chance of having enough savings, $122,000 would be needed for a man and $139,000 would be needed for a woman. Savings targets declined between 6 percent and 11 percent between 2012 and 2013 for a person or couple age 65. For a married couple both with drug expenses at the 90th percentile throughout retirement who wanted a 90 percent chance of having enough money saved for health care expenses in retirement by age 65, targeted savings fell from $387,000 in 2012 to $360,000 in 2013. The PDF for the above title, published in the October 2013 issue of EBRI Notes, also contains the fulltext of another October 2013 EBRI Notes article abstracted on SSRN: “IRA Asset Allocation, 2011.”