Health Reform WK-EDGE Savings needed for retirees’ health expenses declines
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Thursday, June 18, 2020

Savings needed for retirees’ health expenses declines

By Lauren Bikoff, MLS

Needed savings for medical premiums see biggest declines in almost a decade.

The amount of savings that a 65-year-old man needs to save to have a 50/50 chance of sufficiently covering medical premiums and a median prescription drug expenses has declined by 8 percent, according to recent research from the Employee Benefit Research Institute (EBRI). For a 65-year-old woman, the report, A Bit of Good News During the Pandemic: Savings Medicare Beneficiaries Need for Health Expenses Decreases in 2020, found that this has declined by 9 percent. In addition, EBRI found that the decline is even greater at the 90th percentile: in 2020, both men and women need 10 percent less than in 2019.

These are the biggest declines EBRI has seen since 2013, when needed savings declined between 6 and 11 percent. Still, the amount of savings needed for these expenses are significant: for a 90 percent chance of having enough savings, the man needs $130,000 and the woman needs $146,000. For a 50 percent chance of covering these expenses, a man would need $73,000 and a woman would need $120,000. Further, at the 50th percentile and 90th percentile, a couple would need $168,000 and $270,000 respectively. This represents an 8 percent and a 10 percent decline at the 50th and 90th percentiles respectively.

The main reason for the decrease in needed savings from 2019 to 2020 is related to the adjustment made each year to re-establish the baseline for out-of-pocket spending associated with prescription drug use. The Medicare Trustees reduced projected costs for Medicare Part D premiums and out-of-pocket expenses.

"Americans should consider that even with this decline, the amount needed to supplement Medicare is still significant, and that they will likely need more savings than cited in this report," said Paul Fronstin, director of the health research and education program at EBRI. "In addition to the costs cited here, there are the potential costs associated with long-term care and other health expenses not covered by Medicare. Also, many individuals retire before becoming eligible for Medicare. Of course, other workers will need less savings if they choose to work past age 65, or postpone enrollment in Medicare."

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