Health Care Costs in Retirement Are Soaring, but at Least We Saw It Coming

Fidelity Investments® released its 25th annual Retiree Health Care Cost Estimate, revealing a 65-year-old retiring in 2026 can expect to spend an average of $185,500 on health care and medical expenses throughout retirement. Up 7.5% from one year ago, the increase reinforces broader health care market trends, including rising prices for care, continued utilization growth, and growing costs tied to chronic conditions.

Despite the rise, this year’s estimate comes on the heels of positive news, as recent Fidelity research finds Americans’ retirement confidence is trending up: 72% say they will retire on their own terms, and nearly 3-in-4 say they have a plan in place to reach their retirement goals. This confidence is driven in part by awareness and preparation. The vast majority (81%) understand health care costs in retirement to be high, and one-quarter (26%) identify health care costs as a top retirement savings challenge.

“Financial planning for retirement is about more than reaching a savings target, especially as retirement itself continues to evolve,” said Shams Talib, head of Fidelity Workplace Consulting. “Whether Americans fully stop working, phase into their retirement, or pursue new ways to stay engaged, health care consistently remains one of the largest expenses they will face. Providing a benchmark to consider can help them plan with purpose and more confidence.”

How the estimate breaks down

Conducted since 2002, Fidelity’s research generates an estimate designed as a long-term planning benchmark for potential health care costs a retiree will incur even with standard Medicare coverage. The figure is calculated annually to help drive awareness around one of the largest expenses Americans may face in retirement and help them make more informed decisions about saving and planning for the future

Fidelity’s estimate assumes enrollment in Original Medicare (Parts A and B) and Medicare Part D, which includes premiums, copayments, and other out-of-pocket costs for medical care and prescription drugs throughout retirement. It does not include potential Long-Term Care expenses. The figure breaks down as follows:

• Medicare Parts B and D premiums (45%): Monthly expenses associated with Medicare Parts B and D premiums.
• Other medical expenses (48%): Medicare cost-sharing provisions such as co-payments, coinsurance, and deductibles for things like hospital visits and outpatient services, as well as excluded benefits like vision and hearing exams.
• Out-of-pocket prescription drug expenses (7%): Co-payments and amounts not covered by Medicare Part D that individuals pay out-of-pocket for generic, branded, or specialty drugs.

Even with Medicare, retirees should still plan for meaningful health care expenses over time. Yet, according to Fidelity research, 54% of pre-retirees incorrectly believe Medicare will cover all of their health expenses3. For Americans approaching Medicare eligibility, understanding the potential costs they may face—including Medicare premiums, over-the-counter medications, dental and vision, and Long-Term Care—is central to the foundation of their retirement plan.

“Medicare is a critical part of retirement health coverage, but it does not eliminate every health care expense,” said Steve Betts, head of Fidelity Health. “This estimate helps illustrate why both pre-retirees and retirees alike will benefit from carefully considering out-of-pocket expenses and how they will pay for them as they build out their retirement income strategy.”

Planning today unlocks purpose tomorrow

While the cost of health care may be overwhelming, the takeaway is actionable: the earlier someone starts to plan, the more opportunity they have to prepare for expected expenses and build in financial flexibility to support the retirement lifestyle they envision.

For those who are eligible, a health savings account (HSA) can help deliver flexibility and can be a powerful tool for retirement savings. HSAs offer a unique triple-tax advantage: contributions can be made pre-tax; withdrawals for qualified medical expenses can be made tax-free; and any potential investment growth is tax-free as well.

Unlike other health benefit accounts, HSA balances are rolled over annually, giving savers the ability to use funds for qualified medical expenses today or save them for future health care costs in retirement. Moreover, HSA balances can be invested, yet 40% of Americans with HSAs have yet to invest their funds, leaving the potential for growth on the table2.

More resources for planning today and into retirement

Fidelity offers a range of resources to help individuals and employers alike better understand and prepare for health care in retirement:

• Fidelity HSA®, rated the #1 HSA by Morningstar for spenders and savers seven years in a row[6], offers a tax-advantaged way to save, spend, and invest for qualified medical expenses to help individuals prepare for health care costs now and in the future.
• Fidelity Medicare Services® provides educational resources, plan comparison support, and access to licensed insurance agents for ongoing guidance and support.
• Fidelity Workplace Consulting helps employer clients through specialized consulting solutions and services, tailored to address their unique workforce challenges and drive real results across their total workplace.
• Teams at Fidelity’s Investor Centers nationwide are here to help collaborate on a financial plan, discuss goals and investment strategies, and provide guidance on investors’ unique financial situations.
• Fidelity’s Planning Retirement Page has educational resources about the solutions that can help Americans achieve their retirement goals.

Sources: Fidelity