The new health reform law has brought about some lower costs, but American retired people will still need between $120,000 and $211,000 in savings if they want to be 90% sure of being able to cover their out-of-pocket medical expenses during retirement, a report issued today by the Employee Benefit Research Institute (EBRI) revealed. Women, because they live longer, will need to have more savings than men.
The EBRI report is called Funding Savings Needed for Health Expenses for Persons Eligible for Medicare.
EBRI has calculated that the average American male who retires this year aged 65 will need between $65,000 and $109,000 in personal savings if they want a 50% chance of having enough to cover out-of-pocket medical expenses. Those wanting a 90% chance will have to have from $124,000 to $211,000 saved. For women of the same age they will need to have more saved – between $88,000 and $146,000 for a 50% chance and from $143,000 to $242,000 for a 90% chance.
EBRI stresses that their calculations only refer to individuals retiring when they are at least 65 years old. Those retiring earlier will need to put aside much more money.
EBRI says its new analysis estimates how much a single person or a couple will have to have saved up so that Medicare and out-of-pocket health care expenses are covered during retirement. This new analysis has updates from its 2008 estimates (before the new Health Law). Some changes in prescription drug cost sharing (Medicare Part D) have been revised downwards.
Nobody knows how long they are going to live, what illnesses they are likely to suffer from and need health care services for after the age of 65, and what prescription medications they will be on – all these factors make it extremely challenging for people to work out what levels of savings they will need when they retire to cover out-of-pockets expenses.
The EBRI report estimates target savings levels in order to be 50%, 75% and 90% sure of being able to cover those out-of-pocket costs. Co-author, Paul Fronstin, director of EBRI’s Health Research and Education Program, said:
- “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.”
Co-author, Dallas Salisbury, CEO of EBRI, wrote:
- “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.”
In 2007 Medicare paid for 64% of the health care service costs of its beneficiaries aged 65 or more, and out-of-pocket expenses accounted for 14% of costs. Other public programs and private insurance policies paid for the remaining 12%. EBRI says 2007 was quoted because that is the most recent data available.
Written by Christian Nordqvist