“Amount of Savings Needed for Health Expenses for People Eligible for Medicare: Unlike the Last Few Years, the News Is Not Good,” and “How Does the Probability of a “Successful” Retirement Differ Between Participants in Final-Average Defined Benefit Plans and Voluntary Enrollment 401(k) Plans?”

October 2015, Vol. 36, No. 10
Paperback, 24 pp.
PDF, 912 kb
Employee Benefit Research Institute, 2015

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Executive Summary

Amount of Savings Needed for Health Expenses for People Eligible for Medicare: Unlike the Last Few Years, the News Is Not Good



  • Medicare beneficiaries pay a share of their health expenses out-of-pocket because of program deductibles and other cost sharing. In 2012, Medicare covered 60 percent of the cost of health care services for Medicare beneficiaries ages 65 and older, while out-of-pocket spending accounted for 13 percent, and private insurance covered 15 percent.

  • In 2015, a 65-year-old man needs $68,000 in savings and a 65-year-old woman needs $89,000 if each has a goal of having a 50 percent chance of having enough money saved to cover health care expenses in retirement. If either instead wants a 90 percent chance of having enough savings, $124,000 is needed for a man and $140,000 is needed for a woman. This analysis does not factor in the savings needed to cover long-term care expenses.

  • Savings targets increased between 6 percent and 21 percent between 2014 and 2015. For a married couple both with drug expenses at the 90th percentile throughout retirement who want a 90 percent chance of having enough money saved for health care expenses in retirement by age 65, targeted savings increased from $326,000 in 2014 to $392,000 in 2015.

How Does the Probability of a “Successful” Retirement Differ Between Participants in Final-Average Defined Benefit Plans and Voluntary Enrollment 401(k) Plans?



  • Using baseline assumptions (defined in the study), it appears that the defined benefit (DB) plan has a higher probability of achieving a real replacement (when combined with Social Security payments) of 60 percent than the voluntary enrollment (VE) 401(k) plans for the first three income quartiles.

  • If a 70 percent replacement rate is used as a threshold, participants in the third-and fourth-income quartiles have a much higher probability of success with the 401(k) plans than the DB plans.

  • When the threshold is set at a higher (and according to many financial planners, more realistic) replacement rate of 80 percent, the 401(k) plans have a much higher probability of success than the counterfactual DB plans for all groups except for the lowest-income quartile (where the results are virtually even).