- A 65-year-old who retires in 2026 may spend an average of $185,500 on health and medical expenses in retirement, according to Fidelity Investments.
- That is up 7.5% from last year as certain healthcare costs rise, according to the research.
- Here’s how the estimate was tallied — and how retirees may gauge what they’ll spend.
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A 65-year-old who retires in 2026 may spend an average of $185,500 on health and medical expenses in retirement, according to a new estimate from Fidelity Investments — a price tag that the research shows is unexpectedly high for many retirees
The figure is up 7.5% from estimates for last year’s retirees amid rising healthcare costs, growing costs for chronic conditions and increasing utilization of medical services, according to the research
“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 findings come as a record number of baby boomers are reaching traditional retirement age — a trend known as “peak 65” — and may soon have to determine how to fund their medical care
Fidelity’s estimate assumes retirees are enrolled in traditional Medicare — Part A hospital insurance and Part B medical insurance — as well as Part D prescription drug coverage.
The estimate assumes 48% of costs come from Medicare cost-sharing provisions such as co-payments, coinsurance and deductibles; 45% of costs come from monthly expenses associated with premiums for Medicare Parts B and D;and 7% comes from co-payments and expenses not covered by Medicare Part D that people pay out of pocket for branded, generic and specialty drugs
Most pre-retirees — 54% — incorrectly expect Medicare will cover all of 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 could push costs higher
Notably, Fidelity’s estimate does not include long-term care
Someone who is turning 65 has a nearly 70% chance of needing some kind of long-term care services, according to 2020 data from the Department of Health and Human Services
Long-term care costs, including nursing <a href="https://healthylife7.com/home-respiratory-care-set-to-take-off/” title=”Home respiratory care set to take off”>home and home care, are rising faster than inflation and older adults’ incomes, according to a recent report from the AARP Public Policy Institute
In 2024, the median annual private pay costs for six types of long-term services and supports were between $26,000 for five days a week of adult day care services and nearly $128,000 for a private room in a nursing home, according to data from financial services company Genworth and its wholly owned subsidiary, CareScout, focused on long-term care planning
In comparison, the median income in a household headed by someone age 65 or over was about $60,000 per year, according to the AARP, including Social Security benefits and other retirement income
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Prescription drug costs have gone down slightly following the implementation of new Medicare price negotiations, Lloyd-Williams said. However, that is offset by increases in other areas, such as people seeking more services and the increase in chronic conditions per capita, she said
Fidelity’s report is based on data from the Centers for Medicare and Medicaid Services, including projections for future costs, as well as data on how retirees are spending now, according to Lloyd-Williams
The estimate also assumes that Medicare beneficiaries incur base-level premiums, which is what most beneficiaries pay before income-based adjustments, according to Lloyd-Williams. High-income individuals typically have additional coverage costs
Medical premiums and copays take up about one-third of Social Security income and one-fifth of total income for middle-income retirees, according to a 2022 research paper published by the Center for Retirement Research at Boston College
How to account for health costs in retirement savings
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Healthcare expenses should be considered when saving for retirement, Lloyd-Williams said
The earlier that saving starts, the more ability individuals have to plan
That may include the use of health savings accounts, which provide a triple tax advantage — contributions are made pretax, withdrawals for qualified expenses are tax-free and investment growth is also not subject to levies, according to financial advisors
HSA balances may be rolled over from one year to the next, enabling savers to reserve that money for their retirement years. Notably, in order to be eligible for a health savings account, an individual must be enrolled in a qualified high-deductible health plan
Of course, healthcare costs in retirement vary
“Everybody treats health care differently,” said Carolyn McClanahan, a physician and certified financial planner, who is the founder of Life Planning Partners in Jacksonville, Florida. She is a member of CNBC’s Advisor Council
If you’re healthy and never go to the doctor, your healthcare needs will be different compared with someone who requires care all the time, McClanahan said
To help pare down healthcare costs, it helps to remember that the fee-for-service system pays healthcare providers for doing more, McClanahan said. Before getting a healthcare test, ask whether you need it, she said
“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?”
The same skepticism should be applied when deciding whether prescription medication is necessary, McClanahan said
