Retirement healthcare costs are up 7.5% from last year, the sharpest rise in more than a decade, according to Fidelity.
A 65-year-old retiring today will need $185,500 saved to cover healthcare costs in retirement, up from $172,500 last year, according to Fidelity's 25th annual Retiree Health Care Cost Estimate released on Tuesday.
The projected 7.5% jump was the biggest since 2015, when prices soared by 11.4%, according to Fidelity. The estimate reflects broader healthcare market trends, the company said, including rising prices for care and higher usage, in addition to growing costs associated with chronic conditions.
The findings underscore how healthcare remains a big expense for retirees, even with Medicare. Some 54% of preretirees incorrectly believe that Medicare will cover all of their health expenses, according to a Fidelity survey. Yet Medicare isn't free, and like commercial insurance involves premiums and cost-sharing.
Fidelity's estimate assumes enrollment in traditional, government-run Medicare (Parts A and B) and a separate Part D drug plan. More than half of Medicare recipients are instead enrolled in Medicare Advantage, the privately run alternative to traditional Medicare.
Costs stack up differently in the two types of Medicare coverage. Many Advantage plans bundle drug coverage at no extra charge but impose high costs if enrollees see a doctor outside of their restricted provider networks. Traditional Medicare has no provider networks and no annual ceiling on costs, whereas Medicare Advantage plans have an annual out-of-pocket maximum that limits catastrophic outlays. For 2026, the maximum allowed cap is $9,250 for in-network coverage and $13,900 for in and out-of-network services combined, although many Advantage plans set lower limits.
To help cover costs in traditional Medicare, many enrollees buy a Medigap supplement plan. While Fidelity's estimate doesn't assume Medigap coverage, it does reflect the additional costs, whether they are paid monthly in the form of a Medigap premium or less predictably at the point of care by someone without a policy.
A little under half (45%) of Fidelity's total comes from Part B and Part D premiums. The standard Part B premium for 2026 is $202.90 a month, while Part D premiums vary by plan. Other medical expenses, such as copayments, deductibles, and coinsurance (the percentage of the bill patients are responsible for) account for 48% of the total, while out-of-pocket prescription drug expenses account for 7%. Most Americans qualify for premium-free Part A hospital coverage, but still must pay deductibles per hospitalization.
Fidelity's estimate excludes the big wild card of long-term care costs. Medicare doesn't cover routine help with bathing, dressing, and other activities of daily living, whether provided in a care facility or at home. Medicaid does pay for so-called custodial care, but only for people who meet strict financial criteria that vary by state.
While the retirement healthcare tab might seem daunting, savings can add up over time, especially if done strategically. Health savings accounts offer triple tax advantages: Money is contributed tax-free, grows tax-free, and can be withdrawn tax-free now or in retirement -- funds don't expire -- to pay for eligible medical expenses.
To contribute to an HSA, you must be enrolled in a qualifying high-deductible health insurance plan. You can no longer contribute once you have enrolled in Medicare, although you can tap existing funds to pay qualifying Medicare costs, including Part B and D premiums.
Most HSA account holders keep their balance in cash, although it can be invested for higher growth. Investors need stocks for a fighting chance of keeping pace with healthcare inflation, which typically tracks at least a few percentage points higher than general inflation.
One firm has come out with a new offering tailored to address the challenge. Earlier this year, Milliman launched Milliman Healthcare Inflation ETFs, which use an actively managed mix of health sector and related equities, bonds (including TIPs), and alternatives like commodities to seek returns that correlate with healthcare cost changes.
Write to Elizabeth O'Brien at elizabeth.obrien@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
July 21, 2026 12:01 ET (16:01 GMT)
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