Fidelity puts 2026 retiree health costs at $185,500

A 65-year-old retiring in 2026 may spend an average of $185,500 on health and medical expenses during retirement, according to Fidelity Investments. The estimate is 7.5% higher than the figure for last year’s retirees, reflecting higher healthcare costs, greater use of medical services and rising costs tied to chronic conditions, according to the firm’s research.

Helen Lloyd-Williams, vice president of workplace consulting at Fidelity, said the increase was above the pace seen in recent years. The estimate arrives as a large cohort of baby boomers reaches traditional retirement age, adding urgency to household planning for medical expenses after leaving work.

What the estimate includes

Fidelity’s calculation assumes retirees are covered by traditional Medicare, including Part A hospital insurance, Part B medical insurance and Part D prescription drug coverage. It does not assume Medicare pays for all care, a point Fidelity said many people approaching retirement misunderstand.

According to Fidelity’s breakdown, 48% of the projected cost comes from Medicare cost sharing, including copayments, coinsurance and deductibles. Another 45% comes from monthly premiums for Medicare Parts B and D. The remaining 7% reflects out-of-pocket costs for branded, generic and specialty drugs, including expenses and copayments not covered by Part D.

Fidelity said 54% of pre-retirees incorrectly expect Medicare to cover all of their health expenses. Lloyd-Williams said the research is intended to show that Medicare is neither all-inclusive nor free.

The estimate uses data from the Centers for Medicare and Medicaid Services, including projections for future costs, as well as current retiree spending patterns, according to Lloyd-Williams. Fidelity also assumes beneficiaries pay base-level Medicare premiums, before income-related adjustments. Higher-income beneficiaries typically face additional coverage costs.

Long-term care is outside the figure

Fidelity’s $185,500 estimate excludes long-term care, a category that can materially raise costs for older households. A person turning 65 has a nearly 70% chance of needing some type of long-term care service, according to 2020 data from the Department of Health and Human Services.

Costs for nursing home care and home care are rising faster than inflation and older adults’ incomes, according to a recent report from the AARP Public Policy Institute. In 2024, median annual private-pay costs for six types of long-term services and supports ranged from $26,000 for adult day care five days a week to nearly $128,000 for a private nursing home room, according to Genworth and its long-term care planning subsidiary, CareScout.

AARP said the median income for a household headed by someone aged 65 or older was about $60,000 a year, including Social Security and other retirement income.

Prescription drug costs have declined slightly after new Medicare price negotiations took effect, Lloyd-Williams said. She said those savings were offset by increases elsewhere, including higher service use and more chronic conditions per person.

Planning implications

Medical premiums and copays consume about one-third of Social Security income and one-fifth of total income for middle-income retirees, according to a 2022 paper from the Center for Retirement Research at Boston College.

Lloyd-Williams said households should include healthcare expenses in retirement savings plans, with earlier saving giving people more time to prepare. Fidelity’s research notes that health savings accounts may be one option for eligible workers, because contributions are pretax, qualified withdrawals are tax-free and investment growth is not taxed. Eligibility requires enrollment in a qualified high-deductible health plan, and balances can roll over from year to year.

Carolyn McClanahan, a physician, certified financial planner and founder of Life Planning Partners in Jacksonville, Florida, said healthcare spending varies widely by individual. She said people who rarely need medical care will have different costs from those who require frequent treatment.

McClanahan said retirees can question whether tests and prescriptions are necessary, particularly in a fee-for-service system that pays providers for more care. She said patients should ask how a test would change their treatment before agreeing to it.

This story draws on original reporting from CNBC.