After declining in 2020, the predicted saving targets for Medicare beneficiaries to cover health premiums, deductibles, and certain other health expenses in retirement increased between 3 and 8 percent in 2021. These are close to the biggest increases we have seen since 2012.
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 2021, a 65-year-old man needed $79,000 in savings and a 65-year-old woman needed $103,000 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 $142,000 and the woman needs $159,000. This is up 9 percent from 2020.
- For a 50 percent chance of having enough to cover health care expenses in retirement, a couple with median prescription drug expenses needed $182,000 in savings. For a 90 percent chance of having enough, the couple needed $296,000 in savings. This is up 10 percent from 2020.
- 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 were $361,000 in 2021. This is higher than the $325,000 required in 2020.
- The increases identified in this paper are due to a number of reasons. The Medicare Trustees increasing projected costs for Medicare Part D out-of-pocket expenses is one reason for the increase. Another reason is the substantial increase in the Medicare Part B premium.