Summary
Some Couples Could Need as Much as $469,000 in Savings
The percentage of private-sector establishments offering retiree 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 investment returns. The model reflects the Inflation Reduction Act’s $2,000 cap on Part D out-of-pocket spending in 2025 and varying assumptions about Medicare Advantage and Medigap coverage.
EBRI’s analysis finds:
- The predicted savings target increased slightly from last year for Medicare beneficiaries enrolled in Medigap Plan G and remains sensitive to assumptions about premiums, drug costs, and health care use.
- A 65-year-old man enrolled in a Medigap plan with average premiums will need to have saved $120,000 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 $146,000.
- To have a 90 percent chance of meeting their health care spending needs in retirement, a man will need to have saved $212,000, and a woman will need to have saved $252,000. Couples enrolled in a Medigap plan with average premiums, meanwhile, will need to have saved $267,000 to have a 50 percent chance of covering their medical expenditures in retirement and $405,000 to have a 90 percent chance.
- Representing an extreme case, a couple with particularly high prescription drug expenditures will need to have saved $469,000 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. A man enrolled in Medicare Advantage who has median drug expenditures and an average usage of health care services will need to have saved $61,000 to have a 50 percent chance of meeting his health care spending requirements in retirement, and he would need $106,000 to have a 90 percent chance. Meanwhile, a woman will need to have saved $74,000 to have a 50 percent chance and $125,000 to have a 90 percent chance of having enough to cover her health care costs in retirement. Couples will need to have saved $135,000 to have a 50 percent chance and $203,000 to have a 90 percent chance of covering their health care expenditures in retirement. Other factors also affect the choice between Medicare Advantage and traditional Medicare. Medicare Advantage plans often have limited networks or may require approval before certain medications or services are covered.