According to Fidelity Investments, a 65-year-old retiring in 2026 can expect to incur an average of $185,500 in health and medical expenses during retirement, marking a 7.5% increase from last year's estimates. This rise is attributed to escalating healthcare costs, increased prevalence of chronic conditions, and higher utilization of medical services.
Helen Lloyd-Williams, vice president of workplace consulting at Fidelity, noted that many pre-retirees are unaware that Medicare does not cover all health expenses, with 54% mistakenly believing it will cover everything. The estimate assumes retirees will have traditional Medicare coverage, with costs divided among Medicare cost-sharing, premiums, and out-of-pocket expenses for drugs.
Notably, this estimate does not account for long-term care, which has a nearly 70% likelihood of being needed by those turning 65, and whose costs are rising faster than inflation.
For instance, median annual costs for long-term care services can range from $26,000 for adult day care to nearly $128,000 for nursing home care, while the median income for households headed by someone aged 65 or older is about $60,000. Although prescription drug costs have slightly decreased due to new Medicare price negotiations, this is offset by rising costs in other areas.
Fidelity's findings emphasize the importance of incorporating healthcare expenses into retirement savings plans, suggesting that starting to save early can provide more options, including the use of health savings accounts (HSAs). Financial experts recommend being cautious about unnecessary medical tests and treatments to manage healthcare costs effectively