Savings Needed to Fund Health Insurance and Health Care Expenses in Retirement

Source: Paul Fronstin, Dallas Salisbury, Jack VanDerhei, EBRI Issue Brief, no. 317, May 2008

This Issue Brief examines the uncertainty of health care expenses in retirement by using a Monte Carlo simulation model to estimate the amount of savings needed to cover health insurance premiums and out-of-pocket health care expenses. This type of simulation is able to account for the uncertainty related to individual mortality and rates of return, and computes the present value of the savings needed to cover health insurance premiums and out-of-pocket expenses in retirement. These observations were used to determine asset targets for having adequate savings to cover retiree health costs 50, 75, and 90 percent of the time.

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