Fidelity: Retirees Will Need $185,500 for Healthcare Costs

A 65-year-old retiring in 2026 can expect to spend an average of $185,500 on healthcare and medical expenses throughout retirement, according to the 25th annual Retiree Health Care Cost Estimate from Fidelity Investments. The figure marks a 7.5% increase from last year’s estimate of $172,500 — the largest year-over-year jump in recent years — driven by rising healthcare prices, increased utilization of medical services, and growing costs from chronic conditions.

The Growing Burden of Healthcare in Retirement

Fidelity has published its retiree healthcare cost benchmark annually since 2002, and the estimate has risen steadily over time, reflecting the broader trajectory of U.S. healthcare inflation. The 2026 estimate assumes enrollment in Original Medicare (Parts A and B) along with Medicare Part D prescription drug coverage, covering premiums, copayments, and out-of-pocket costs for medical care and prescriptions throughout retirement.

According to CNBC, the increase comes amid a “Peak 65” demographic wave, as a record number of baby boomers reach traditional retirement age and confront the reality of funding their medical care.

“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, as reported by CNBC.

Breaking Down the $185,500 Estimate

Fidelity’s analysis breaks the total estimate into three components:

• Medicare Part B and D premiums account for approximately 45% of the total, or roughly $83,475, covering monthly premiums for medical and prescription drug coverage.
• Medicare cost-sharing provisions make up about 48%, or roughly $89,040, including copayments, coinsurance, and deductibles for hospital visits, outpatient services, vision, and hearing exams.
• Out-of-pocket drug costs represent the remaining 7%, or roughly $12,985, covering copays and expenses not covered by Part D for generic, branded, and specialty drugs.

“Medicare is a critical part of retirement health coverage, but it does not eliminate every healthcare expense,” said Steve Betts, head of Fidelity Health, as reported by InvestmentNews. “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.”

The Medicare Misconception

A critical finding from Fidelity’s research reveals a significant planning gap: 54% of pre-retirees incorrectly expect Medicare will cover all of their health expenses. In reality, Medicare does not cover long-term care, most dental care, vision exams and eyeglasses, hearing aids, and certain out-of-pocket costs.

“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 told CNBC.

Long-Term Care: The Uncounted Cost

Notably, Fidelity’s estimate explicitly excludes long-term care costs. According to the Department of Health and Human Services, someone turning 65 has nearly a 70% chance of needing some form of long-term care services. The AARP Public Policy Institute reports that long-term care costs are rising faster than inflation and older adults’ incomes.

For context, the median annual cost for a private nursing home room was approximately $128,000 in 2024, while the median household income for those aged 65 and over is roughly $60,000 per year, including Social Security.

Planning Strategies for Retirees

Financial advisors are increasingly pointing clients toward Health Savings Accounts (HSAs) as a key planning vehicle. HSAs offer a triple tax advantage — pre-tax contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. However, Fidelity notes that 40% of Americans with HSAs have not invested those balances, leaving potential growth untapped.

“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, healthcare consistently remains one of the largest expenses they will face.”

What to Watch For

The 7.5% jump in healthcare cost estimates arrives amid ongoing policy debates about Medicare sustainability, drug price negotiations under the Inflation Reduction Act, and the financial security of older Americans. With Medicare Part B premiums rising to $202.90 per month in 2026 — a 9.7% increase — and the Social Security COLA for 2026 at just 2.8%, a growing share of seniors’ benefit increases is being absorbed by higher healthcare costs.

As the “Peak 65” generation enters retirement, the intersection of healthcare costs and retirement income security remains one of the most critical financial challenges facing older Americans today.