EBRI Issue Brief

A Bit of Good News During the Pandemic: Savings Medicare Beneficiaries Need for Health Expenses Decrease in 2020

May 28, 2020 12  pages


But Some Couples Could Need as Much as $325,000 in Savings

In 2020, the predicted saving targets for Medicare beneficiaries to cover health premiums, deductibles, and certain other health expenses in retirement have fallen between 8 and 10 percent since 2019. These are the biggest declines we have seen since 2012, with the exception of 2013, when needed savings declined between 6 and 11 percent. 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.

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 2020, a 65-year-old man needs $73,000 in savings and a 65-year-old woman needs $95,000 in savings for a 50 percent chance of having enough to cover premiums and median prescription drug expenses in retirement. For a 90 percent chance of having enough savings, the man needs $130,000 and the woman needs $146,000. This is down 10 percent from 2019.
  • For a 50 percent chance of having enough to cover health care expenses in retirement, a couple with median prescription drug expenses needs $168,000 in savings. For a 90 percent chance of having enough, the couple needs $270,000 in savings. This is down 10 percent from 2019.
  • At the extreme — a couple with drug expenses at the 90th percentile throughout retirement who wants a 90 percent chance of having enough money for health care expenses in retirement by age 65 — targeted savings are $325,000 in 2020.
  • This $325,000 amount is lower than the nearly $363,000 required in 2019 but continues to represent a significant amount of money.

The declines identified in this paper are due to a number of reasons. The Medicare Trustees reduced projected costs for Medicare Part D premiums and out-of-pocket expenses. The change in our model from Medigap Plan F to Plan G also accounted for a portion of the decline in needed savings.