While healthcare costs can be daunting for all Americans, the specter of an increase in this area can be especially worrisome for retirees. Unfortunately, 2021 saw the amount of savings needed to cover healthcare costs rise by between 3 and 8%, close to the biggest jump since 2012, according to a simulation run by the Employee Benefit Research Group. This did come after a year in 2020, though, where this number actually decreased.
If you want help planning for a secure retirement, consider finding a professional through SmartAsset’s free financial advisor matching service.
How Healthcare Cost Expectations Went Up
To find out projected savings needed to cover healthcare costs — which includes 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 — EBRI uses a Monte Carlo simulation model using 100,000 simulated observations “allowing for the uncertainty related to individual mortality and rates of return on assets in retirement.”
This year’s model found that in 2021, a 65-year old man needed $79,000 in savings and a 65-year old woman needed $103,000 in savings to have a 50% chance to cover premiums and median prescription drug expenses. For a 90% chance, the number is $142,000 and $159,000 respectively. That’s up 10% from 2020. A couple needed $182,000 in 2021 for a 50% chance and $296,000 for a 90% chance, also up 10%.
There are a number of reasons identified by the study as possible causes of this increase, including increased projected costs for out-of-pocket Medicare Part D expenses and a substantial increase to the Medicare Part B premium.
How to Save Enough to Pay for Healthcare in Retirement
The best way to make sure you can cover all of your healthcare costs in retirement is to start saving early. Compounding interest means that the earlier you start putting money away, the more chance that money has to grow and create more savings for you.
If you have access to a workplace retirement plan like a 401(k), that’s probably the best option — especially if you have access to an employer matching program. If not, consider opening an individual retirement account (IRA).
The Bottom Line
According to a study from the EBRI, the savings needed to cover potential healthcare costs in retirement went up in 2021 after decreasing in 2020, possibly as a result of increased out-of-pocket prescription costs and an increase to Medicare Part B premiums. To make sure you’re covered when you reach retirement, start saving money early in your career and don’t let up!
Healthcare Planning Tips
- To plan for retirement and all other financial planning questions, consider working with a financial advisor. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Healthcare costs can rack up even before retirement. If you anticipate big expenditures, consider opening a health savings account to spend some money tax free.
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