Fidelity Investments released its 25th annual estimate of retiree healthcare costs, which revealed a significant jump from a year ago as medical care and related expenses become more expensive.
The report estimated that a 65-year-old who retires in 2026 can expect to spend an average of $185,500 on healthcare and medical expenses throughout their retirement. That amount is an increase of 7.5% from last year amid rising healthcare prices, growth in the utilization of medical services and growing costs stemming from chronic conditions.
“Financial planning for retirement is about more than reaching a savings target, especially as retirement itself continues to evolve,” said Shams Talib, head of Fidelity Workplace Consulting.
“Whether Americans fully stop working, phase into their retirement, or pursue new ways to stay engaged, healthcare consistently remains one of the largest expenses they will face,” Talib added. “Providing a benchmark to consider can help them plan with purpose and more confidence.”
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Fidelity’s report has been compiled each year since 2002 and yields an estimate designed as a benchmark for long-term planning around possible healthcare costs a retiree will incur despite standard Medicare coverage.
The estimate assumes enrollment in Original Medicare (Parts A and B), as well as Medicare Part D – which includes premiums, copayments and out-of-pocket costs for medical care and prescription drugs throughout retirement. The figure doesn’t include potential long-term care expenses.
Out of the total estimate of $185,500, Fidelity’s analysis finds that about 45% of that amount goes to monthly premiums for Medicare Part B and Part D.
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Another 48% go to covering other medical expenses under Medicare cost-sharing provisions – such as copayments, coinsurance, deductibles for things like hospital visits and outpatient services.
That figure also includes other medical services that aren’t covered by Medicare plans, such as vision and hearing exams.
The final 7% of the total comes from out-of-pocket expenses, like co-payments and amounts that aren’t covered by Medicare Part D and are out-of-pocket expenses for generic, branded or specialty drugs.
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“Medicare is a critical part of retirement health coverage, but it does not eliminate every healthcare expense,” said Steve Betts, head of Fidelity Health.
“This estimate helps illustrate why both pre-retirees and retirees alike will benefit from carefully considering out-of-pocket expenses and how they will pay for them as they build out their retirement income strategy,” Betts added.
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