Medicare covers only 59% of the cost of health care for seniors - and retirees can expect to pay an even larger share in the future. In fact, a couple aged 65 might need $387,000 saved in order to be confident of covering their health care costs in retirement, not including outlays for long-term care, finds a report from the Employee Benefit Research Institute.

Going forward, EBRI predicts that "individuals can expect to pay a greater share of their costs out of pocket because of the combination of the underfunded financial condition of the Medicare program and cutbacks to employment-based retiree health programs." To put numbers on how much seniors will need, EBRI used a Monte Carlo simulation model; it came up with estimates based on enrollment in original Medicare, supplemented with a Plan F Medigap policy and a Medicare Part D plan for prescription drug coverage.

EBRI found that estimated health care costs for seniors depends on how much people are likely to spend on prescription drugs, and how confident they want to be that they'll cover their health care costs.

For example, take a married couple in which both spouses are now 65. They are in good health, so they expect to use the median amount of prescription drugs in retirement, and they are satisfied with a 50% chance of meeting their lifelong health care costs. Such a couple should have $163,000 in savings, EBRI concluded.

On the other hand, suppose that same couple expected to be in the 90th percentile of prescription drug usage and also wanted a 90% chance of having enough savings. Such a couple would need savings of $387,000, says EBRI.

Donald Jay Korn writes for Financial Planning, a SourceMedia publication.

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