Another reminder that health care expenses need to be factored into retirement planning comes in the form of a new research report published today by the Employee Benefit Research Institute (EBRI).
A man who turned 65 in 2023 would need an average of $184,000 saved to have a 90% chance of covering median Medicare Part B premiums and deductibles, Medicare Part D premiums and out-of-pocket drug expenses through retirement.
EBRI
According to the report, a man who turned 65 in 2023 would need an average of $184,000 saved to have a 90% chance of covering median Medicare Part B premiums and deductibles, Medicare Part D premiums and out-of-pocket drug expenses through retirement (up from $166,000 last year), while a woman who turned 65 in 2023 would need $217,000 saved (up from $197,000 last year), and a couple enrolled in a Medigap plan with average premiums would need $351,000 to have a 90% chance of covering their expenses (up from $318,000 last year).
“Health care costs in retirement can be considerable and may not necessarily be a salient issue for workers,” said Jake Spiegel, research associate, Health and Wealth Benefits Research, EBRI.
To project how much Medicare beneficiaries may need to save to have a reasonable chance of meeting their health care spending requirements in retirement, Spiegel said EBRI built a simulation model allowing for uncertainty due to mortality and rates of return on assets in retirement. “This model incorporates recent changes to Medicare Part D enacted by the Inflation Reduction Act of 2022 and tests varying assumptions about Medicare Advantage and Medigap plans that Medicare beneficiaries may purchase,” he added.
The predicted savings target for Medicare beneficiaries to cover premiums, deductibles, and prescription drugs in retirement rose in 2023.
Representing an extreme case, a couple with particularly high prescription drug expenditures will need to have saved $413,000 to have a 90% chance of having enough money to cover their health care costs in retirement. That represents an increase from the $383,000 savings target for an extreme case last year.
Although there is significant individual-level variation, enrollees in Medicare Advantage plans generally have lower savings targets, the report states.
A man enrolled in Medicare Advantage who has median drug expenditures and is an average user of health care services will need to have saved $99,000 to have a 90% chance of meeting his health care spending requirements in retirement. Meanwhile, a woman will need to have saved $116,000 to have a 90% chance of having enough to cover her health care costs in retirement.
Couples will need to have saved $189,000 to have a 90% chance of covering their health care expenditures in retirement. Of course, the report notes there are tradeoffs to consider; Medicare Advantage plans often have limited networks or may require approval before certain medications or services are covered.
“The results from EBRI’s projection model indicate that basic health care costs incurred by Medicare beneficiaries are high. While the savings targets tend to be lower for Medicare Advantage enrollees relative to Medigap enrollees, there are important limitations to take into account,” Spiegel said.
To view a summary of the research report, “Projected Savings Medicare Beneficiaries Need for Health Expenses Increased Again in 2023,” visit https://www.ebri.org/publications/research-publications/issue-briefs/content/projected-savings-medicare-beneficiaries-need-for-health-expenses-increased-again-in-2023.
SEE ALSO:
• What a 65-Year-Old Retiring Today Will Spend on Healthcare
• How Much a 65-Year-Old Retiring in 2023 Needs to Cover Healthcare Costs
• 2024 Medicare Part B Premium Increase: 6%
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
