Medicare Recipients, Get Ready for Higher Costs: EBRI

What You Need to Know

An EBRI study of health care savings needs in retirement showed a 3% to 8% increase in 2021 from 2020.
Key reasons for the increase include increasing Medicare Part D costs and a rise in Medicare Part B premiums.
Typically, Medicare covers only about two-thirds of health care service costs, according to EBRI.

An annual estimate of how much money a 65-year-old Medicare beneficiary should have in savings to cover health care costs in retirement surged in 2021, according to the Employee Benefit Research Institute.

The predicted health savings targets were 3% to 8% higher for 65-year-olds retiring in 2021 than for those retiring in 2020, a new study released Thursday by the EBRI found. Expenses included health premiums, deductibles and other largely out-of-pocket costs.

This is nearly the largest increase since 2012. The reasons, the EBRI said, were due to the Medicare trustees increasing projected costs for Medicare Part D out-of-pocket expenses as well as the substantial increase in the Medicare Part B premium.

In 2022, the cost-of-living adjustment for Social Security beneficiaries is 5.9%.

What Your Peers Are Reading

The EBRI used a Monte Carlo simulation, allowing for uncertainty related to individual mortality and rates of return on assets in retirement.

Findings include:

In 2021, a 65-year-old man needed $79,000 in savings and a 65-year-old woman needed $103,000 in savings for a 50% chance of having enough to cover premiums and median prescription drug expenses in retirement, the study reported. For a 90% chance of having enough savings, the man needed $142,000 and the woman needed $159,000. This is up 9% from 2020.

For a 50% chance of being able to cover health care expenses in retirement, a couple with median prescription drug expenses needed $182,000 in savings. For a 90% chance of having enough, they needed $296,000. This is up 10% from 2020, the study states.

A couple with drug expenses at the 90th percentile throughout retirement who want a 90% chance of having enough money for health care expenses in retirement by age 65 would have a savings target of $361,000, up from $325,000 in 2020, the study says.

The study also noted: “As of 2019, Medicare covered 59 percent of the cost of health care services for Medicare beneficiaries ages 65 and older, while out-of-pocket spending accounted for 13 percent of incurred costs, and private insurance covered 18 percent.”