An annual estimate of how much money a 65-year-old Medicare beneficiary needs to have in savings to cover health care costs in retirement jumped again in 2022, according to recently released data from the Employee Benefit Research Institute.
Per the new study, a 65-year-old man enrolled in a Medigap plan with average premiums will need to have saved $96,000 in order to have a 50% chance of having enough to cover premiums and median prescription drug expenditures, and a woman will need to have saved $116,000.
To have a 90% chance of meeting their health care spending needs in retirement, a man will need to have saved $166,000, and a woman will need to have saved $197,000. Couples enrolled in a Medigap plan with average premiums, meanwhile, will need to have saved $212,000 to have a 50% chance of covering their medical expenditures in retirement and $318,000 to have a 90% chance.
Representing an extreme case, a couple with particularly high prescription drug expenditures will need to have saved $383,000 to have a 90% chance of having enough money to cover their health care costs in retirement.
To project how much Medicare beneficiaries may need to save to have a reasonable chance of meeting their health care spending requirements in retirement, EBRI built a simulation model allowing for uncertainty due to mortality and rates of return on assets in retirement. EBRI has improved on previous iterations of this simulation model by incorporating recent changes to Medicare Part D enacted by the Inflation Reduction Act of 2022 and testing varying assumptions about Medicare Advantage and Medigap plans that Medicare beneficiaries may purchase.
The predicted savings target for Medicare beneficiaries to cover premiums, deductibles, and prescription drugs in retirement remains high, and is sensitive to assumptions about premiums, prescription drug expenses, and usage of health care services.
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 $56,000 to have a 50% chance of meeting their health care spending requirements in retirement, and he would need $96,000 to have a 90% chance.
Meanwhile, a woman will need to have saved $67,000 to have a 50% chance and $113,000 to have a 90% chance of having enough to cover her health care costs in retirement. Couples will need to have saved $123,000 to have a 50% chance and $184,000 to have a 90% percent chance.
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.
Check out the full 16-page brief here.
