“Savings Needed for Health Expenses in Retirement: An Examination of Persons Ages 55 and 65 in 2009,” and “Many 401(k) Sponsors Suspending Matching Contributions Also Funding Defined Benefit Pension Plans”

June 2009, Vol. 30, No. 6
Paperback, 20 pp.
PDF, 545 kb
Employee Benefit Research Institute, 2009

Download Notes PDF pdf

Executive Summary

Savings Needed for Health Expenses in Retirement: An Examination of Persons Ages 55 and 65 in 2009


GENDER DIFFERENCES: This report updates earlier EBRI research on estimated savings needed to cover health insurance to supplement Medicare and out-of-pocket expenses for health care services in retirement. It finds that men age 65 in 2009 retiring this year will need anywhere from $68,000–$173,000 in savings to cover health insurance premiums and out-of-pocket expenses in retirement if they want a 50–50 chance of being able to have enough money, and $134,000–$378,000 if they prefer a 90 percent chance. With their greater longevity, women will need more: a women retiring at age 65 in 2009 will need anywhere from $98,000–$242,000 in savings to cover health insurance premiums and out-of-pocket expenses in retirement for a 50–50 chance of having enough money, and $164,000–$450,000 for a 90 percent chance. For those seeking a median (50 percent) chance of having enough money for health care in retirement, these estimates are about 9 percent higher than a year ago for men and married couples, and 16 percent higher for single women.


ACTUAL COSTS LIKELY TO BE HIGHER: Many individuals will need more money than the amounts cited in this report because this analysis does not factor in the savings needed to cover long-term care expenses, nor does it take into account the fact that many individuals retire prior to becoming eligible for Medicare. However, some workers will need to save less than what is reported if they choose to work during retirement and receive health benefits as active workers.


401(k) Sponsors Suspending Matching Contributions Are Generally Also Funding Defined Benefit Pension Plans


401(k) MATCHES AND PENSION FREEZES: A review by EBRI of 251 401(k) plan sponsors that have suspended 401(k) matching contributions for their 4.4 million workers finds that those employing 50 percent of the workers also maintained an open defined benefit plan. An additional 16 percent of workers were with employers that were still obligated to fund a frozen defined benefit plan. Further, 8 percent of the workers were with an employer that had both an open and a frozen defined benefit plan that carried funding obligations.


MANDATORY VS. DISCRETIONARY FUNDING: Because of the current economic conditions, many of these employers must make what are unexpected contributions to the defined benefit plan as a result of asset losses and liability growth, but they can eliminate what are discretionary matching contributions to a 401(k)-type plan. For the 50 percent of the workers in this group of 251 employers, the 401(k)-type retirement plan is an additional benefit to the open defined benefit pension plan; thus, retirement benefits are still being provided by the employer, in spite of the suspended 401(k) matching contribution.