EBRI Says Retirees Need to Save More for Healthcare

The increased savings required to cover rising healthcare costs hasn’t been this big in a decade.

The amount a 65-year-old should have saved for healthcare costs jumped 3% to 8% in 2021, says a new study from the Employee Benefits Research Institute.

The EBRI concluded those with the biggest needs will need to have saved even more. For example, a couple who reached 65 years old in 2021 and needs the highest level of drug expenses in retirement should have accumulated a total of $361,000 for health costs. That compares to $325,000 for couples reaching 65 in 2020.

“Several reasons drive seniors’ need for more savings to cover healthcare expenses,” said Paul Fronstin, director of EBRI’s Health Research and Education Program, and co-author of the report, in a press release. “The Medicare Trustees increasing projected costs for Medicare Part D out-of-pocket expenses is one cause for the growth in costs. At the same time, there was a substantial increase in the Medicare Part B premium.”

The report notes Medicare Trustees increased projected out-of-pocket expenses for drugs, covered by Medicare Part D, though premiums were projected to be lower. The trustees raised their projection for the Part D deductible to $670 in 2029, up from $645, a 4% increase, the EBRI report said.

It also noted that on November 12, 2021, the Centers for Medicare and Medicaid Services announced that the Medicare Part B premium would increase from $148.50 in 2021 to $170.10 in 2022. That 15% increase is responsible for 25% to 50% of the increase in EBRI’s savings targets.

The report noted EBRI’s analysis does not include long-term-care and other health expenses not covered by Medicare. It also does not consider the fact that many individuals retire before becoming eligible for Medicare. But it does acknowledge that some workers will need to save less if they work past age 65 and postpone enrollment in Medicare Parts B and D because they receive health benefits as active workers.

Also, the study assumes that individuals are participating in original Medicare, not cheaper all-inclusive Medicare Advantage plans, offered by private insurers with usually far more limited networks of doctors. The study assumes the health expenses for which savings would be accumulated are premiums for Medicare Parts B and D, the Part B deductible, premiums for Medigap Plan G, and out-of-pocket spending for outpatient prescription drugs.

According to the Kaiser Family Foundation (KFF),  “In 2021, more than four in 10 (42%) Medicare beneficiaries – 26.4 million people out of 62.7 million Medicare beneficiaries overall – are enrolled in Medicare Advantage plans; this share has steadily increased over time since the early 2000s.”

It’s likely Medicare Advantage plans will become an even larger presence in Medicare, KFF says, especially since the Medicare Hospital Insurance Trust Fund is currently projected to be insolvent by 2026.



Latest news

One Product Powers Annuity Sales to New Records

Total annuity sales surged to $310.6 billion last year, a 22% increase from 2021 results and 17% higher than the record set in 2008.

Wealth Taxes Have Unexpected Consequences

A new paper finds they encourage companies to raise dividends so executives have the funds to cover wealth taxes.

Advisor Clients More Nervous About Financial Futures, Survey Finds

They are more likely to say they will continue to work and are less confident about their financial futures, a Nationwide survey finds.

WalletHub Release 2023 Best and Worst States to Retire

The ranking looked at 47 metrics related to affordability, quality of life and health care.

Heard of Magna, Utah? Clients’ Kids Might Want to Buy a Home There

A new ranking identifies the best markets for first-time home buyers.

Real Estate Sector Expected to Outperform

According to a new report, one sector of real estate is continuing to break records despite rising interest rates.