EBRI Issue Brief

Projected Savings Medicare Beneficiaries Need for Health Expenses Spike in 2021

Jan 13, 2022 14  pages


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.