Estimated Health Savings Needed for Retirement Drops

The estimated savings a retiree needs in order to cover health care costs during retirement dropped from 2012, but a couple should still aim for saving $360,000.

The estimated savings a retiree needs in order to cover health care costs during retirement dropped from 2012, according to a report by the Employee Benefit Research Institute (EBRI).

While savings targets declined between 6% and 11% for a person or couple age 65, target savings were still at $360,000 in 2013. One of the reasons for this target decline is because projects of spending growth per Medicare beneficiary have slowed, according to data from the Congressional Budget Office and the Centers for Medicare and Medicaid Services.

“Individuals can expect to pay a greater share of their costs out-of-pocket in the future because of the combination of the financial condition of the Medicare program and cutbacks to employment-based retiree health programs,” said Paul Fronstin, director of EBRI’s Health Research and Education program and co-author of the report.

The model to determine how much money an individual or a couple needs in retirement to cover health care expenses includes factors such as: the age of retirement; length of life after retirement; the availability and source of insurance coverage to supplement Medicare; and out-of-pocket expenses.

Plus, public policy changes could affect any of the factors. As such, EBRI warns an estimated number is just that: an estimate.

“While it is possible to come up with a single number that individuals can use to set retirement savings goals, a single number based on averages will be wrong for the vast majority of the population,” authors Fronstin, Dallas Salisbury and Jack VanDerhei wrote.

Furthermore, the numbers aren’t even the same for men and women. Since women have longer life expectancies than men, they will need more savings to cover health care expenses during retirement after age 65.

According to the report, a man would need $65,000 in savings in 2013 and a woman would need $86,000 for both to have a 50% chance of having enough money to cover median drug expenses in retirement. T0 reach a 90% chance of having enough savings, a man needs $122,000 and a woman needs $139,000.

“It should be noted that many individuals will need more than the amounts cited in this report because this analysis does not factor in the savings needed to cover long-term care expenses, nor does it take into account the fact that many individuals retire prior to becoming eligible for Medicare,” the authors wrote. “However, some workers will need to save less than what is reported if they choose to work during retirement, thereby postponing enrollment in Medicare Parts B and D if they receive health benefits as active workers.”