How Much 65-Year-Olds Will Spend on Healthcare in Retirement

Rising Healthcare Costs in Retirement: What You Need to Know

As more Americans approach retirement, the financial burden of healthcare costs is becoming increasingly significant. According to a recent report by Fidelity Investments, a 65-year-old retiring in 2025 can expect to spend an average of $172,500 on healthcare expenses throughout their retirement. This figure represents a 4% increase from the previous year and is more than double the forecast from 2002, when the firm first began estimating such costs.

The estimate assumes that the retiree is enrolled in traditional Medicare Part A and Part B, which covers most hospital care and doctor visits, as well as Part D for prescription drugs. It also includes Medicare premiums, out-of-pocket prescription drug costs, and other medical expenses like co-payments, coinsurance, and deductibles for doctor and hospital visits.

Shams Talib, head of Fidelity Workplace Consulting, emphasized the importance of planning for these costs. “Year after year, so many Americans underestimate how much they’ll need to save to cover healthcare costs in retirement,” he said.

This forecast comes at a time when confidence in retirement prospects has slightly declined, with about 11,000 people turning 65 every day. While the rate of increase for this year’s forecast was 4%, slightly less than last year’s 5% gain, it still far exceeds Fidelity’s initial estimate of $80,000 in 2002.

Recent research from Fidelity highlights a concerning trend: 20% of Americans have never considered healthcare needs during retirement, with the figure rising to one in four among Generation X. Across all generations, 17% have taken no action at all when it comes to planning for health expenses in retirement.

Chelse Stevens, vice president and financial consultant with Fidelity Investments, explained that many people overlook healthcare costs because they are covered by their employer while working. “If you’re working and your employer covers healthcare, you may forget you need to cover it yourself in retirement,” she said. “But it’s not something that has to derail retirement. Yes, it’s a big number. But we have to remember that this is over the course of retirement, not a one-year number.”

It’s important to note that Fidelity’s forecast does not include long-term care expenses, such as home healthcare support, assisted living, or extended nursing home stays. The national median cost for assisted living is $70,800 per year, while the median cost for a semi-private room in a nursing home reached $111,325 in 2024, according to the 2024 Cost of Care Survey conducted by Genworth and CareScout. As many as seven out of 10 people will require some form of long-term care in their lifetime, according to Genworth.

Stevens noted that long-term care costs can be overwhelming. “Each person’s situation will be a little different. Again, it’s about education and planning and using the tools available to you. And save what you can when you can.”

One way to save for healthcare expenses is through a health savings account (HSA). However, only 23% of Americans are contributing to such an account, according to Fidelity. Among those with HSAs, just three in 10 are investing their assets, leaving growth potential untapped. An HSA is a tax-advantaged savings account available only to those with a high-deductible health plan. The funds are portable and can be used to pay for qualified medical expenses.

While the Fidelity forecast assumes enrollment in traditional Medicare, more than half of Medicare beneficiaries are actually enrolled in Medicare Advantage plans. With 68.6 million people aged 65 and older enrolled in Medicare, 51.2% of them are in Medicare Advantage plans, according to the Centers for Medicare & Medicaid Services.

Stevens concluded, “The big price tag on healthcare expenses can cause sticker shock, but it may help get people thinking and asking questions.”