Retirement Health Care Costs Are On the Rise: What You Need to Know

The cost of health care in retirement is getting more expensive as the price of everything from co-payments to prescription drugs increases.

How much will it all cost? According to Fidelity Investments’ 24th annual Retiree Health Care Cost Estimate, about $174,500. That’s how much an individual aged 65, with Medicare, will spend in his or her lifetime on out-of-pocket health care expenses. That’s up 4% from $165,000 in 2024. Back in 2002, the first year Fidelity put out an annual estimate, the cost was a mere $80,000.

“Ultimately, we are seeing the costs increase across the board,” says Andrew Atkins, CFP, VP, financial consultant at Fidelity Investments. “It’s costs associated with co-payments, co-insurance, co-deductibles, doctors, hospitals, Medicare premiums, and prescription drugs. It's not one single item. Its costs in general, increasing.”

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Fidelity’s estimate assumes an individual is enrolled in traditional Medicare — both Part A and Part B—which covers most hospital care and doctor visits, and Part D — which covers prescription drugs. It does not include Medicare premiums, over-the-counter medications, dental and vision care, and anything else Medicare doesn't cover. Plus any stints in a long-term care facility, which can cost as much as $10,646 a month for a private room in a nursing home.

Health care not on your retirement mind?

Despite the staggering costs associated with health care after age 65, Fidelity also found that one in five Americans never considers their health care needs in retirement. What’s more, across all generations, 17% say they haven't taken any actions when it comes to planning for health expenses once they stop working.

Atkins says it's likely because the majority of Americans have health care costs automatically deducted from their paychecks and are used to operating with the net amount they see from their checking and savings accounts, and as a result, aren’t thinking about having to shell out money for health care.

“They tend to underestimate what it means to transition to retirement and be on Medicare or bridge that gap if they retire early,” says Atkins.

What you can do

The key to absorbing the out-of-pocket health care costs in retirement is to educate yourself about how much you will likely be on the hook for and then come up with a plan.

When creating an estimate, Atkins says he assumes an inflation rate of 4.9% each year. He also says the assumption is that men will live to be at least 87 years old and women will live to be at least 89.

After that, it's important to carve out some savings, beyond an emergency fund, that is dedicated to health care. It’s also a good idea to live a healthy life that includes plenty of exercise, a good diet, plenty of sleep and hydration. That will help keep costs down.

While it's not likely that health care costs will ever come down or even flatten out, you can balance your spending in retirement to ensure you have enough to cover your expenses.

Don’t assume your costs will drop as you age. Instead, save some of your go-go years' fun money for your slow-go years when your health care costs will likely rise.

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