New research from the Employee Benefit Research Institute (EBRI) indicates that Americans are underestimating their healthcare costs in retirement, and the estimates may be too low. For a 65-year-old man enrolled in Medicare with a Medigap plan, the man will need to save $166,000 to have a 90% chance of covering his projected healthcare costs in retirement. For a woman of the same age, the figure is $197,000 due to their longer life spans.
However, these may be lowball estimates, according to experts. As Medicare does not cover all healthcare costs, many beneficiaries are forced to purchase Medigap or enroll in Medicare Advantage plans to offset out-of-pocket costs. The combination of premiums for supplement coverage and out-of-pocket expenses can be a significant burden for many Medicare beneficiaries. The EBRI report does not account for potential long-term care expenses and other costs not covered by Medicare, such as dental and vision care.
For seniors enrolled in Medicare Advantage plans, the savings targets are usually lower. A 65-year-old man enrolled in Medicare Advantage, with median drug expenditures and average usage of healthcare services, will need to save $96,000 to have a 90% chance of meeting medical bills in retirement. Meanwhile, a 65-year-old woman will need $113,000.
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The report also does not take into account that many people retire before becoming eligible for Medicare at 65, and they usually have to pay their health insurance plan expenses out of their pocket for a few retirement years. Thus, these conservative estimates should warn Americans who still have years to retire to consider contributing to a health savings account (HSA). Eligibility for HSAs requires enrollment in a high-deductible health care plan.
In conclusion, the estimates for retirement healthcare costs may be too low, and Americans are underestimating their retirement expenses. To have a good chance of covering these costs, Americans must save more than they expect, and many people will need to plan carefully for much more significant sums once they get older and need more care in addition to health care.
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