Retirement News for Senior Citizens

Retirement News for Seniors

Out-of-pocket drug costs increase funds needed for retirement

A good reason seniors need to take close look at Medicare drug plan during open enrollment

woman dropping coins in small purseOct. 26, 2015 – If senior citizens needed one more push before being persuaded to take a close, fresh look at their Medicare Part D prescription drug plan during this open enrollment period, this may be it. A new study finds those planning for retirement need to increase the amount they need to budget for paying for health care, due to increase in out-of-pocket prescription drug cost.

Projected savings targets needed to cover health care in retirement are going up again after several years of decline, according to the nonpartisan Employee Benefit Research Institute (EBRI). This follows more recent declines during 2012‒2014.

EBRI found that the range of retiree health savings or budget targets rose between 6 and 21 percent between 2014 and 2015.

While there are various factors at play, “the main reason for the increase in needed savings is related to the yearly adjustment for out-of-pocket spending for prescription drug use,” said Paul Fronstin, director of EBRI’s Health Research and Education Program and co-author of the report.


Because actual out-of-pocket spending for prescription drugs in the most recent data turned out to be higher than expected, future estimates have gone up.

Since the EBRI analysis does not factor in the savings needed to cover such things as long-term care expenses, retirement earlier than becoming eligible for Medicare, and higher Medicare premiums related to higher income, “many individuals will need more than the amounts cited in this report,” Fronstin said.

Some workers will need to save less than what is reported, he said, if they choose to work past age 65, and can postpone enrollment in Medicare and receive health benefits as active workers.

The range of increases depends on how much health expenses a person is likely to have and how high a probability they want to have enough money on hand.

Specifically, EBRI found, in 2015, a 65-year-old man would need $68,000 in savings and a 65-year-old woman would need $89,000 if each has a goal of having a 50 percent chance of having enough money saved to cover health care expenses in retirement. But, if either instead wanted a 90 percent chance of having enough savings, $124,000 is needed for a man and $140,000 is needed for a woman.

Not surprisingly, those with high prescription drug costs would need to save substantially more.

For a married couple both with drug expenses at the 90 percentile throughout retirement, who want a 90 percent chance of having enough money saved for health care expenses in retirement by age 65, targeted savings increased from $326,000 in 2014 to $392,000 in 2015.

EBRI’s latest analysis updates its previous estimates on savings needed to cover health insurance premiums and health care expenses in retirement.

As before, it points out that projections of savings needed to cover out-of-pocket expenses for prescription drugs are highly dependent on the assumptions used for drug utilization, which is why the analysis provides three sets of estimates:

  1. prescription drug use is at the median (mid-point, half above and half below) throughout retirement;

  2. prescription drug use at the 75 percentile throughout retirement; and

  3. prescription drug use is at the 90 percentile throughout retirement.

Last year’s analysis by EBRI found that retiree health savings targets declined between 2 percent and 10 percent between 2013‒2014, due in part to enhanced prescription drug coverage provided by the Patient Protection and Affordable Care Act (PPACA), often called Obamacare.

Medicare was never designed to cover health care expenses in full, Fronstin noted. In 2012,

  • Medicare covered 60 percent of the cost of health care services for Medicare beneficiaries ages 65 and older,

  • out-of-pocket spending accounted for 13 percent, and

  • private insurance covered 15 percent.

Graphic reminder of Medicare Open Enrollment dates 2015

For Medicare information about Open Enrollment, click

The full report, “Amount of Savings Needed for Health Expenses for People Eligible for Medicare: Unlike the Last Few Years, the News Is Not Good,” is published in the October 2015 EBRI Notes and online at

EBRI’s publications can also be accessed through mobile device apps, available in the Apple store for Apple devices and Google Play for Android devices.

The Employee Benefit Research Institute is a private, nonpartisan, nonprofit research institute based in Washington, DC, that focuses on health, savings, retirement, and economic security issues. EBRI conducts objective research and education to inform plan design and public policy, does not lobby and does not take policy positions. The work of EBRI is made possible by funding from its members and sponsors, which include a broad range of public, private, for-profit and nonprofit organizations. For more information go to or


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