Fidelity Says Retirement Health Costs Just Hit A New High

As retirement approaches for many Americans nearing age 65, there’s an expectation that Medicare will serve as the primary source of coverage for their healthcare expenses.

Fidelity Investments published new research showing that the majority of pre-retirees underestimate what Medicare covers, a gap the firm says can leave them exposed to high out-of-pocket costs in retirement.

A 65-year-old retiring in 2026 can expect to spend an average of $185,500 on healthcare and medical expenses throughout retirement, Fidelity reported.

That number jumped 7.5% from the prior year's estimate of $172,500, and the annual increase rate is itself speeding up year over year.

For a married couple retiring at the same age, the combined lifetime projection reaches $371,000 in total out-of-pocket healthcare costs, the firm noted.

Fidelity's healthcare estimate reaches its highest level in 25 years of tracking

Fidelity's projection has gained speed over the last three years, climbing roughly 4% in 2024, 5% in 2025, and 7.5% this year, Bloomberg reported.

When Fidelity first published this annual benchmark in 2002, the estimated lifetime healthcare cost for a 65-year-old retiree stood at $80,000.

The figure has now more than doubled over roughly two decades, tracking a healthcare inflation rate that consistently outpaces the broader consumer price index.

"It definitely is a higher increase than we've had in the past few years," Helen Lloyd-Williams, Vice president of workplace consulting at Fidelity, told CNBC.

Fidelity's estimate assumes enrollment in Original Medicare, covering Part A hospital insurance and Part B medical coverage, alongside Part D prescription drug coverage.

The projection includes premiums, copayments, coinsurance, deductibles, and out-of-pocket drug expenses, but it does not include potential long-term care costs.

Those long-term care expenses can become surprisingly high and would push total retirement medical costs significantly higher for many retirees and their families.

A private room in a nursing home carried a median annual cost of $129,575 in 2025, according to CareScout, a wholly owned subsidiary of Genworth Financial.

More than half of pre-retirees misunderstand what Medicare will cover

One of the most striking findings in Fidelity's research is the disconnect between what people expect Medicare to pay and what the program will cover.

About 54% of pre-retirees incorrectly assume the federal program will cover all of their healthcare expenses once they leave the workforce, CNBC reported.

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Fidelity's cost breakdown reveals where those dollars go: roughly 48% of projected lifetime spending comes from cost-sharing provisions like copayments, coinsurance, and annual deductibles.

Another 45% comes from monthly premiums for Medicare Parts B and D, and the remaining 7% covers out-of-pocket costs for branded, generic, and specialty drugs.

Lloyd-Williams told CNBC that many future retirees have not fully considered how much they will need to pay out of pocket for their care.

She emphasized that Medicare does not automatically cover all costs and is not entirely free, which often surprises new enrollees.

Healthcare inflation is outpacing Social Security's annual raise

The gap between rising healthcare costs and the annual benefit increases designed to offset them continues to widen for Americans living on fixed retirement income.

The Social Security Administration set the 2026 cost-of-living adjustment at 2.8%, translating to roughly $56 more per month for the average retired worker.

The Centers for Medicare and Medicaid Services raised the standard Part B monthly premium to $202.90 this year, a 9.7% jump from $185 in 2025.

That $17.90 premium increase alone takes up nearly a third of the average retiree's $56 monthly raise before any other healthcare expenses are considered.

Shannon Benton, executive director of The Senior Citizens League, told The Motley Fool that the persistent pattern of Medicare premium increases outrunning Social Security cost-of-living adjustments is gradually eroding retirees' financial security year after year.

Medicare Part B premiums consistently overtaking Social Security COLAs degrades American seniors' quality of life over time. Our members constantly tell us that they feel like their benefits aren't keeping up, and this is a great example of that experience in action

Over the longer term, the disparity widens further, according to data published earlier this year by retirement healthcare analytics firm HealthView Services.

The firm's 2026 report projected a long-term healthcare inflation rate of 5.8%, compared with a projected long-term Social Security cost-of-living adjustment averaging 2.4%.

HealthView also estimated that 84% of a healthy 65-year-old couple's lifetime Social Security benefits would be needed to cover healthcare costs alone, the report noted.

The cost of health-related care in retirement "still comes with sticker shock," Ron Mastrogiovanni, chief executive of HealthView Services, noted in a statement.

Health savings accounts give workers a way to prepare for rising medical costs 

Qualified medical withdrawals from health savings accounts are tax-free, creating what financial professionals often describe as a triple tax benefit for eligible savers.

The Internal Revenue Service set the 2026 contribution limit at $4,400 for individuals enrolled in eligible high-deductible health plans and $8,750 for family coverage, Fidelity stated.

Workers aged 55 and older can contribute an additional $1,000 per year in catch-up contributions, and balances carry over from one year to the next.

Despite those advantages, 40% of health savings account holders have not yet invested the funds sitting in their accounts, Fidelity reported.

"Financial planning for retirement is about more than reaching a savings target, especially as retirement itself continues to evolve," Shams Talib, head of Fidelity Workplace Consulting, said in a statement.

Healthcare costs consistently remain one of the largest expenses retirees face as they transition away from the workforce, Talib added.

Related: Vanguard reveals health account best for retirement