Summary
Some Couples Could Need as Much as $428,000 in Savings
The percentage of private-sector establishments offering health benefits has been falling. As access to retiree health benefits becomes increasingly rare, the responsibility for health care expenses in retirement will fall more on the shoulders of today’s workers. To project how much Medicare beneficiaries may need to save to have a reasonable chance of meeting their health care spending requirements in retirement, the Employee Benefit Research Institute (EBRI) built a simulation model allowing for uncertainty due to mortality and rates of return on assets in retirement. EBRI’s model reflects recent legislative changes to Medicare Part D enacted by the Inflation Reduction Act of 2022, which caps out-of-pocket spending on prescription drugs at $2,000 in 2025 and tests varying assumptions about Medicare Advantage and Medigap plans that Medicare beneficiaries may purchase.
EBRI’s analysis finds:
- The predicted savings target for Medicare beneficiaries to cover premiums, deductibles, and prescription drugs in retirement increased slightly relative to last year for Medicare beneficiaries who enroll in Medigap Plan G, and is sensitive to assumptions about premiums, prescription drug expenses, and usage of health care services.
- A 65-year-old man enrolled in a Medigap plan with average premiums will need to have saved $109,000 to have a 50 percent chance of having enough to cover premiums and median prescription drug expenditures, and a 65-year-old woman will need to have saved $133,000.
- To have a 90 percent chance of meeting their health care spending needs in retirement, a man will need to have saved $191,000, and a woman will need to have saved $226,000. Couples enrolled in a Medigap plan with average premiums, meanwhile, will need to have saved $243,000 to have a 50 percent chance of covering their medical expenditures in retirement and $366,000 to have a 90 percent chance.
- Representing an extreme case, a couple with particularly high prescription drug expenditures will need to have saved $428,000 to have a 90 percent chance of having enough money to cover their health care costs in retirement.
- Although there is significant individual-level variation, enrollees in Medicare Advantage plans generally have lower savings targets than they did in 2023 due to lower projections of health care cost inflation. A man enrolled in Medicare Advantage who has median drug expenditures and an average usage of health care services will need to have saved $57,000 to have a 50 percent chance of meeting his health care spending requirements in retirement, and he would need $98,000 to have a 90 percent chance. Meanwhile, a woman will need to have saved $69,000 to have a 50 percent chance and $116,000 to have a 90 percent chance of having enough to cover her health care costs in retirement. Couples will need to have saved $125,000 to have a 50 percent chance and $188,000 to have a 90 percent chance of covering their health care expenditures in retirement. Of course, there are other factors to consider when it comes to choosing a Medicare Advantage plan over traditional Medicare. Medicare Advantage plans often have limited networks or may require approval before certain medications or services are covered.