If you turn 65 in 2026, expect health care to be one of the larger bills you face in retirement. Fidelity estimates the typical new retiree will spend about $185,500 on medical costs — a roughly 7.5% rise from the prior year — underscoring growing pressure on household budgets as a record number of baby boomers reach retirement age.
That number matters now because higher medical spending can erode savings, affect decisions about when to claim Social Security and change how retirees choose coverage. Below, we break down what Fidelity included in its estimate, what it left out and practical steps people can take to reduce risk.
What the estimate covers
Fidelity’s figure assumes retirees are enrolled in traditional Medicare — Part A (hospital), Part B (medical) and Part D (prescription drug) — and reflects current spending patterns and projected cost growth from federal data. The firm divides the average outlay roughly as follows:
- 48% — Medicare cost-sharing (deductibles, co-payments and coinsurance).
- 45% — Monthly premiums for Medicare Parts B and D at base levels.
- 7% — Out-of-pocket drug expenses, including costs not covered by Part D for branded, generic and specialty medicines.
Fidelity also notes that more than half of pre-retirees (about 54%) mistakenly believe Medicare will cover all of their health expenses — a misconception that can leave households underprepared. Helen Lloyd-Williams, Fidelity’s vice president of workplace consulting, said the increase this year is larger than recent annual changes and reflects both rising prices and greater use of medical services.
Long-term care is not included — and it can be costly
The $185,500 estimate excludes long-term care such as nursing homes and home health aides. Federal data from 2020 indicate nearly 70% of people reaching age 65 will need some form of long-term care during their lives, and recent analyses show these costs are climbing faster than inflation and typical retirement incomes.
For context, private-pay median annual costs in 2024 ranged from roughly $26,000 for adult day services (five days per week) to nearly $128,000 for a private nursing home room, according to long-term care cost trackers. By contrast, the median household income for someone 65 or older is around $60,000 per year when Social Security and other retirement income are included.
That gap means many retirees would quickly exhaust ordinary retirement income if they need extended long-term care without insurance or family support.
Why prescription costs and usage matter
New Medicare price negotiations have trimmed some prescription expenses, but the savings have been offset by other trends: more chronic conditions per capita, higher utilization of services and rising fees for non-drug care. Fidelity’s calculations use Centers for Medicare & Medicaid Services projections combined with current spending patterns to model future costs.
The estimate assumes beneficiaries pay the standard, or base, premiums for Medicare Parts B and D; wealthier retirees often face higher income-related surcharges that would increase their out-of-pocket burden. Research from the Center for Retirement Research at Boston College found that medical premiums and co-pays can consume about one-third of Social Security income and roughly one-fifth of total income for middle-income retirees — a significant share of household resources.
How to factor health costs into retirement planning
- Start saving earlier. Time is a powerful ally for building a health-cost buffer.
- Consider a health savings account (HSA) if eligible — contributions are pretax, qualified withdrawals are tax-free and investment growth is tax-advantaged. Note: HSAs require enrollment in a qualified high-deductible health plan.
- Remember HSAs roll over year to year, allowing balances to grow for retirement use.
- Be mindful of Medicare premium brackets — high earners typically pay more.
- Question the necessity of tests and treatments in a fee-for-service system; unnecessary procedures add costs without improving outcomes.
- Factor potential long-term care needs into plans; long-term care insurance, hybrid policies or dedicated savings can mitigate the risk but come with trade-offs.
Healthcare costs in retirement vary widely — a healthy person who rarely needs care will face a very different profile than someone with ongoing chronic conditions. Practical planning means building flexibility into retirement income, understanding what Medicare does and does not cover, and making choices that reduce exposure to unexpected medical bills.
As more Americans reach age 65, these health cost dynamics will shape retirement security and policy debates. For individuals, the immediate takeaway is straightforward: don’t assume Medicare is free or complete, and account for medical spending — including possible long-term care — when you plan and save.
Similar Posts
- Social Security averages $1,607, 401(k) payouts only about $2,400 a month: retirees face shortfall
- Medicare Special Enrollment Alert: Deadline Approaching Fast!
- Social Security 2027 cost-of-living boost could jump as oil prices surge
- Retirement 4% rule under scrutiny: new research favors a different income plan
- $1 Million Retirement Fund: Can It Last 77 Years? See the State-by-State Breakdown!
Jordan Keller specializes in analyzing the US financial markets. With concrete recommendations, he helps you secure and boost your investments by providing strategies that adapt to market fluctuations.