EBRI Pinpoints Retiree Health Expenses

June 3, 2008 (PLANSPONSOR.com) - A 65-year-old man would need $122,000 in current savings for a 90% chance of having enough to cover retiree health costs and $64,000 to have a 50% chance of funding his health care needs, a new study found.

A news announcement from the Employee Benefit Research Institute (EBRI) said the data was part of its study of how much savings would be required to pay for post-retirement health coverage insurance premiums and out-of-pocket health expenses. The estimate for the 65-year-old man assumed supplementing Medicare with retiree health benefits from a former employer with premiums subsidized by a former employer.

EBRI also found:

  • A woman would need current savings of $86,000 to have a 50% chance of having enough money for retiree health expenses, or $140,000 for a 90% chance.
  • A married couple would need current savings of $154,000 to have a 50% chance of having enough money for retirement health costs, or $235,000 for a 90% chance.

In its study report, EBRI said separate estimates covered individuals and couples who supplement Medicare with employment-based retiree health benefits and those who use a combination of individual health insurance through Medigap and Medicare Part D outpatient drug coverage. In each case, EBRI presented estimates for individuals and couples to determine the assets needed to cover retiree health costs 50%, 75%, and 90% of the time.

EBRI’s estimated costs for a 65-year-old individual who supplements Medicare with retiree health benefits from a former employer but the premiums are not subsidized by a former employer:

  • A man would need $102,000 in current savings to have a 50% chance of having enough money to cover health care expenses in retirement, or $196,000 in current savings for a 90% chance.
  • A woman would need current savings of $137,000 to have a 50% chance of having enough money for retiree health expenses, or $224,000 to have a 90% chance.
  • A married couple would need savings of $246,000 to have a 50% chance of having enough money for retirement health costs, or $376,000 for a 90% chance.

EBRI researchers pointed out that the gender differences are driven by differing longevity experience between men and women.

Another estimate was done for those with Medicare with individually purchased supplemental insurance -- 65-year-old individuals who do not have employment-based retiree health benefits and instead supplement Medicare with the individually purchased Medigap (Plan F) and Medicare Part D outpatient drug coverage.

According to EBRI:

  • A man with median drug expenditures would need $79,000 in current savings to have a 50% chance of having enough money to cover health care expenses in retirement, or $159,000 for a 90% chance of having enough to cover retiree health costs. At the 90th percentile level of drug spending, a man would need $331,000 for a 90% chance of having enough money to cover retiree health costs.
  • A woman with median drug expenditures would need current savings of $108,000 for a 50% chance of having enough money for retiree health expenses, or $184,000 for a 90% chance of having enough money. At the 90th percentile level of drug spending, a woman would need $390,000 to have a 90% chance of having enough money to cover retiree health costs.
  • A married couple, both with median drug expenses would need current savings of $194,000 to have a 50% chance of having enough money for retirement health costs, or $305,000 for a 90% chance. For those with very high drug expenses (in the 90th percentile), couples would need $635,000 to have a 90% chance of having enough money.

The EBRI report is available here .

Savings Needed for Employment-Based Health Premiums, Medicare Part B Premiums, and Out-of-Pocket Costs for Retirement at Age 65 in 2008

Employer Subsidizes Premiums

No Employer Subsidy of Premiums

Men

Median

$64,000

$102,000

75th percentile

96,000

154,000

90th percentile

122,000

196,000

Women

Median

86,000

137,000

75th percentile

112,000

179,000

90th percentile

140,000

224,000

Married Couple

Median

154,000

246,000

75th percentile

198,000

317,000

90th percentile

235,000

376,000

Employee Benefit Research Institute

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