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Fidelity Investments: Retirement just got more expensive.
A 65-year-old retiring in 2026 should expect to spend roughly $185,500 on healthcare throughout retirement.
That's according to a new estimate from Fidelity Investments. The figure caught many off guard. Researchers say it's higher than most retirees anticipate.
Costs Climb 7.5% in a Single Year
The number marks a 7.5% jump from last year's estimate. Rising healthcare costs are driving the increase.
Chronic conditions are becoming more expensive to manage. More retirees are also using medical services than before.
"It definitely is a higher increase than we've had in the past few years," said Helen Lloyd-Williams, vice president of workplace consulting at Fidelity.
The timing matters. A record wave of baby boomers is hitting traditional retirement age right now.
Industry watchers call it "peak 65." Many of these retirees will soon need to figure out how to cover their medical bills.
Where the Money Goes
Fidelity's estimate assumes retirees carry traditional Medicare. That includes Part A hospital coverage, Part B medical insurance, and Part D prescription drug coverage. The breakdown looks like this.
Cost-sharing tools like co-payments, coinsurance, and deductibles account for 48% of expenses.
Monthly premiums for Parts B and D make up another 45%. The remaining 7% covers out-of-pocket drug costs not covered by Part D.
Many people misunderstand what Medicare actually pays for. Fidelity found that 54% of pre-retirees mistakenly believe Medicare will cover all their health expenses.
"This is education for people who may not have thought about how they might need to pay for healthcare in retirement, that their Medicare isn't automatically going to cover everything, and that Medicare isn't entirely free," Lloyd-Williams said.
Long-Term Care Isn't Even Included
Here's the catch: Fidelity's $185,500 figure doesn't factor in long-term care. That's a significant gap.
Data from the Department of Health and Human Services shows people turning 65 face nearly a 70% chance of needing long-term care services at some point.
Those costs are climbing fast. A recent AARP Public Policy Institute report found long-term care expenses are outpacing both inflation and older adults' incomes.
The numbers back that up. In 2024, median annual costs for long-term services ranged widely.
Adult day care five days a week ran about $26,000. A private nursing home room cost nearly $128,000.
Those figures come from Genworth and its long-term care planning subsidiary, CareScout. Compare that to income.
The median household headed by someone 65 or older brought in about $60,000 annually, according to AARP.
That figure includes Social Security and other retirement income.
A Mixed Bag on Drug Prices
There's a small silver lining. Prescription drug costs have edged down slightly. Lloyd-Williams credits new Medicare price negotiations for the dip.
But that relief is getting canceled out elsewhere. More retirees are seeking additional services.
Chronic conditions per capita are also on the rise, she said. Fidelity built its report using data from the Centers for Medicare and Medicaid Services.
That includes future cost projections along with current retiree spending patterns, Lloyd-Williams said.
The estimate assumes beneficiaries pay base-level premiums.
That's the standard rate before income-based adjustments kick in. Higher earners typically pay more. The financial squeeze is already visible.
A 2022 paper from the Center for Retirement Research at Boston College found that medical premiums and copays consume about one-third of Social Security income for middle-income retirees. That's one-fifth of their total income.
Planning Ahead for Medical Costs
Healthcare needs a spot in every retirement plan, according to Lloyd-Williams. Starting early gives savers more room to prepare, Fidelity's research shows.
Health savings accounts offer one path forward. Financial advisors point to their triple tax advantage. Contributions go in pretax.
Withdrawals for qualified expenses come out tax-free. Investment growth isn't taxed either.
HSA funds also roll over year to year. That lets savers stockpile money specifically for retirement.
One catch: enrollment requires a qualifying high-deductible health plan. Not everyone's situation looks the same, though.
"Everybody treats health care differently," said Carolyn McClanahan, a physician, certified financial planner, and founder of Life Planning Partners in Jacksonville, Florida. She also sits on CNBC's Advisor Council.
Someone who rarely visits a doctor will have very different needs than someone requiring constant care, McClanahan noted.
Cutting Costs Without Cutting Corners
McClanahan offered a practical tip for trimming expenses.
The healthcare system often rewards providers for ordering more tests and services, she said. Her advice: ask questions before agreeing to a test.
"If you're totally healthy and everything's been great, what are they going to do differently for you?" McClanahan said. "If they can't answer that, do you really need that test?"
She recommends applying the same scrutiny to prescription medications. Ask whether they're truly necessary before filling that bottle.
Visual Disclaimer: This is an AI-generated illustrative portrait. It is used for creative representation and does not depict a real-time event. Created by AD News Live.
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