Millions of Future Retirees May Underestimate Health Care Costs by Thousands of Dollars

New data on health care costs for seniors might mean it’s time to revisit your retirement plan. According to a recent estimate from Fidelity Investments, health care costs are expected to rise significantly, and these expenses could quickly eat into retirement savings. The 25th annual Retiree Health Care Cost Estimate suggests that a 65-year-old who retires in 2026 may spend an average of $185,500 on health care and medical expenses during their retirement.

Here’s how the newest estimate might impact you and how to prepare to cover those expenses.

13 Moves Seniors Could Benefit From

Seniors often overlook certain steps that can make a big difference in their financial well-being during retirement. Here are some key actions to consider:

• Review your insurance coverage: Ensure that your current health insurance plan aligns with your needs and budget.
• Consider long-term care insurance: This can provide a safety net for unexpected care costs.
• Create a health care budget: Factor in potential expenses such as premiums, copayments, and deductibles.
• Utilize health savings accounts (HSAs): These accounts offer tax advantages that can help save for future health care costs.
• Stay informed about Medicare: Understand what is and isn’t covered by your plan.
• Explore alternative income sources: Consider part-time work or other revenue streams to supplement your retirement income.
• Invest in preventive care: Regular check-ups and screenings can help avoid more costly treatments down the line.
• Consult a financial advisor: A professional can help you navigate complex financial decisions.
• Plan for emergencies: Set aside an emergency fund to cover unexpected health-related expenses.
• Evaluate your housing options: Consider whether downsizing or moving to a more affordable location could reduce costs.
• Take advantage of community resources: Many local organizations offer support and services for seniors.
• Stay physically active: Exercise can improve overall health and reduce the risk of chronic conditions.
• Maintain social connections: Social engagement can have a positive impact on mental and physical health.

What the Predicted Health Care Cost Means

Fidelity’s new $185,500 estimate represents a 7.5% increase from 2025’s $172,500 health care cost estimate. Several factors likely contribute to this increase, including rising health care prices and growing costs associated with chronic health conditions. As life expectancy increases, so do the potential health care needs of retirees.

What the Estimate Includes

Fidelity calculates the health care cost estimate annually to help retirees plan for their expenses and make well-informed retirement savings and planning decisions. It reflects the amount that retirees may pay even with standard Medicare coverage.

The estimate assumes that retirees are enrolled in Original Medicare (Parts A and B) and Medicare Part D. It includes premiums, copayments, and out-of-pocket costs that retirees may pay for medical care and prescription drugs.

Of the total cost, about 45% goes to Medicare Part B and D premiums, while 48% is allotted to other expenses like copayments, coinsurance, and deductibles. Out-of-pocket prescription drug expenses make up the remaining 7%.

The total bill serves as a planning benchmark for retirees, since it’s spread across decades of retirement, and the bill isn’t due all at once.

What the Predicted Expenses Don’t Include

While the idea of paying $185,000 in health care and medical expenses may seem overwhelming, that figure excludes one critical element: Long-term care.

Fidelity reports that individuals turning 65 today have about a 70% chance of needing some type of long-term care to help with tasks like eating or bathing. The Department of Health and Human Services reports that individuals rely on long-term care for an average of three years.

The cost of long-term care may be staggering. Fidelity reports that the annual national median cost of in-home caregiving in 2025 was $80,080, while adult day health care was $34,675. Assisted living facility care was $74,400, and a semi-private nursing home room was $114,972. Upgrading to a private room in a nursing home cost $129,575.

Those figures are annual, so assuming a retiree needs three years of care, in-home care totals might reach $240,000 or more, while a private room in a nursing home might cost nearly $400,000 or more.

The Value of a Health Savings Account

Fidelity emphasizes the value a health savings account (HSA) offers. HSAs are triple tax-advantaged; contributions are made tax-free, and contributions made through payroll deductions aren’t subject to Social Security or Medicare taxes. Individuals may invest money into their HSA, where it grows tax-free. Then, when they withdraw from the HSA for qualified health expenses, those withdrawals aren’t taxed.

HSAs may be a valuable tool in saving for retirement. Individuals who have a high-deductible health insurance plan may contribute to HSAs. The funds stay in an HSA from year to year if they aren’t spent, so investments could potentially grow for decades, helping individuals cover health care costs in retirement.

In 2026, individuals may contribute up to $4,400 to an HSA, while families may contribute up to $8,750. Individuals age 55 or older may contribute an additional $1,000 per year as a “catch-up contribution.”

Understanding What Medicare Actually Covers

Fidelity’s research reveals that many pre-retirees underestimate what Medicare actually covers. Fifty-four percent of pre-retirees believe Medicare covers all of their health expenses, which isn’t true. Medicare’s premiums, cost-sharing, and excluded services may quickly add up, and new retirees may find that they haven’t appropriately budgeted for these unanticipated health care costs.

Options to Pay for Long-Term Care

Since long-term care costs may be so steep, retirees may need a specific plan to cover the costs of such care. Some hybrid life insurance long-term care policies accumulate a cash value and may offer tax-free benefit payouts to help cover the cost of care. These hybrid policies may pay long-term care benefits worth as much as four times the premium paid.

Some retirees take out home equity lines of credit (HELOCs) to help pay for needed care. These function as revolving lines of credit with a variable interest rate, and the borrower’s home functions as collateral on the loan, meaning the home could be at risk if the borrower cannot repay the loan.

Medicare doesn’t offer long-term care coverage, but Medicaid usually covers nursing home services and room and board. In some states, Medicaid covers home and community-based services. States may also offer programs to help residents pay for care.

Bottom Line

Health care costs may quickly add up in retirement, so it’s important to be prepared for these expenses. As you create your retirement budget, factor a realistic health care line item into that budget. If you have access to an HSA, you might consider funding it now to help cover health care costs. Rather than assuming Medicare should cover the cost of long-term care, plan separately for your potential care needs and consider how you might cover those costs.

Overlooking health care costs in retirement may be one of the most expensive financial mistakes, but by planning for those costs now, you may be better prepared and less stressed when you retire.

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