A Couple May Need $363,000 to Cover Health Care Expenses in Retirement

Some couples may need as much as $363,000 to cover their health care expenses in retirement, according to the Employee Benefit Research Institute (EBRI).

This is because when Medicare was established in 1965, it was not designed to cover health care expenses in full. As of 2016, Medicare covered only 64% of the cost of health care services for Medicare beneficiaries age 65 and older, while out-of-pocket spending accounted for 11% of costs. Private insurance covered 12% of costs.

EBRI says that due to the financial condition of the Medicare program and cutbacks to employment-based retiree health programs, in the future, individuals are going to have to pay a greater share of their health care costs in retirement.

EBRI says the amount an individual will need to cover health care expenses in retirement hinges on a number of variables, including when they retire, how long they live in retirement, the availability and source of health insurance to supplement Medicare, their health status, the rate of health care cost increases and interest rates.

In 2019, a man would need $79,000 in savings and a woman $104,000 if they had a goal of a 50% chance of having enough money to cover health care expenses in retirement. However, if their goal was a 90% chance, a man would need $144,000 and a woman, $163,000.

A couple who both had median drug expenses would need $183,000 to have a 50% chance of having enough money to cover health care expenses in retirement. For a 75% chance, they would need $248,000, and for a 90% chance, $301,000.

In conclusion, EBRI says, “Despite lower projected savings targets for health care expenses in retirement among Medicare beneficiaries with high use of prescription drugs throughout retirement, individuals should still be concerned about saving for health insurance premiums and out-of-pocket expenses in retirement.” In fact, EBRI says, many individuals may need even more than the amounts in its report, should they need long-term care, incur other expenses not covered by Medicare or retire before they are eligible for Medicare.

An earlier EBRI brief said that at the extreme, a couple could need $399,000 to cover out-of-pocket health care costs in retirement. Another earlier EBRI brief found that housing is the highest expense individuals face in retirement, accounting for 48% of their bills.

Americans have expressed a desire for including health care cost planning in overall retirement planning.

EBRI’s issue brief can be downloaded here.