Savings Needed to Fund Health Insurance and Health Care Expenses in Retirement : Findings from a Simulation Model

This paper provides estimates for savings needed to cover health insurance to supplement Medicare and out-of-pocket expenses for health care services in retirement. It finds that a male age 65 in 2008 and retiring at age 65 will need anywhere from $64,000 to $159,000 in savings to cover health insurance premiums and out-of-pocket expenses in retirement if they are comfortable with a 50 percent chance of having enough money and $196,000 to $331,000 if they prefer a 90 percent chance. Women age 65 retiring in 2008 will need anywhere from $86,000 to $184,000 in savings to cover health insurance premiums and out-of-pocket expenses in retirement if they are comfortable with a 50 percent chance of having enough money, and $223,000 to $390,000 if they prefer a 90 percent chance. Persons currently age 55 will need even greater savings when they turn 65 in 2018. Past EBRI research has examined how much money an individual needs for health care expenses in retirement, focusing on how savings varies by length of life and health care cost increases. Past research was based on computer modeling that used deterministic (non-random) analytical techniques. The research presented in this paper builds on that earlier work by introducing random (stochastic) computer modeling to more realistically examine the uncertainty of longevity and investment risk as well as future health care cost increases. This paper begins with a brief discussion of the modeling technique, followed by main findings and updated data on trends in retiree health benefits