This paper examines the amount of savings Medicare beneficiaries are projected to need to cover program deductibles, premiums and other health expenses in retirement. For the purposes of this study, health expenses include premiums for Medicare Parts B and D, premiums for Medigap Plan F, and out-of-pocket spending for outpatient prescription drugs. Data come from a variety of sources and are used in a Monte Carlo simulation model that simulates 100,000 observations, allowing for the uncertainty related to individual mortality and rates of return on assets in retirement.
- In 2016, a 65-year-old man would need $72,000 in savings and a 65-year-old woman would need $93,000 if each had a goal of having a 50 percent chance of having enough savings to cover health care expenses in retirement.
- If they wanted a 90 percent chance of having enough savings, the man would need $127,000 and the woman would need $143,000.
- A couple with median prescription drug expenses would need $165,000 if they had a goal of having a 50 percent chance of having enough savings to cover health care expenses in retirement. If they wanted a 90 percent chance of having enough savings, they would need $265,000.
- For a couple with drug expenses at the 90th percentile throughout retirement who wanted a 90 percent chance of having enough money saved for health care expenses in retirement by age 65, targeted savings would be $349,000 in 2016.
- From 2015 to 2016, projected savings targets increased between 0 percent and 6 percent. In contrast, savings targets declined between 2011 and 2014, but then they increased from 2014 to 2015 as well. Despite the increase in savings targets since 2014, the 2016 savings targets continue to be lower than they were in 2012 almost across the board. It is important to note that many individuals are likely to need more than the amounts cited in this report.
This analysis does not factor in the savings needed to cover long-term care expenses and other expenses not covered by Medicare, nor does it take into account the fact that many individuals retire prior to becoming eligible for Medicare. However, some workers will need to save less than what is reported if they choose to work past age 65, thereby postponing enrollment in Medicare Parts B and D if they receive health benefits as active workers.