Retirees still require a large savings to cover out-of-pocket health expenses in retirement, despite the reduced retirement health costs the new health reform law brings, according to a nonpartisan Employee Benefit Research Institute report.
Women especially need more savings because they typically live longer than men. EBRI, for example, finds men retiring in 2010 at age 65 need $65,000-$109,000 in savings to cover retirement health insurance premiums and out-of-pocket expenses for a 50 percent chance of having enough money. For a 90 percent chance, $124,000-$211,000 is needed. However, women retiring in 2010 at 65 need $88,000-$146,000 in savings for a 50 percent chance of having enough money while $143,000-$242,000 is needed for a 90 percent chance.
EBRI estimates these figures for Medicare beneficiaries age 65 and older, and for those retiring before age 65, more savings is needed.
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The EBRI report examines the savings amount an individual or couple requires to cover Medicare and out-of-pocket health care expenses in retirement and updates 2008 EBRI simulation results. Some previous projections have been considerably adjusted downward because of revisions to Medicare Part D cost sharing that will be phased in by 2020, based on the Patient Protection and Affordable Care Act of 2010.
EBRI also reports retirees still necessitate a significant savings to cover retirement health care expenses, and uncertainty based on health care use, prescription drug use, and longevity continue to play a chief role in retiree health care planning.
"Because employers are continuing to scale back retiree health benefits, and policymakers may soon begin to address Medicare's funding shortfall, more of the financial costs of health care will be shifted to Medicare beneficiaries in the future," says Paul Fronstin, director of EBRI's health research and education progra, and co-author of the report.
Dallas Salisbury, EBRI CEO and co-author of the report, states, "Many workers are generally unprepared for both health care expenses in retirement and retirement expenses. In fact, many individuals will need more money than the amounts cited in this report."
This is because the analysis intentionally excludes the savings required to cover long-term care expenses or the reality that many retire before they are Medicare eligible.
Some key findings of the report include:
- Those who are age 55 need even more savings when they turn 65 in 2020.
- The necessary savings for men retiring in 2020 is $111,000-$354,000, and the recommended savings for women is $147,000-$406,000, though it is dependent on their supplemental Medicare coverage, employer subsidies and prescription drug use as well as their savings goal based on their comfort level with having a 50 percent, 75 percent or 90 percent chance of having enough money to cover retirement health insurance premiums and out-of-pocket health care expenses.
The full report, Funding Savings Needed for Health Expenses for Persons Eligible for Medicare, appears in the December 2010 EBRI Issue Brief, and can be viewed online at www.ebri.org.
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