A 65-year-old retiring this year should expect to spend around $165,000 on healthcare during their retirement—a nearly 5% increase from last year, according to Fidelity Investments. This amount is more than double the projection made in 2002 when Fidelity first started estimating retiree healthcare costs.
Many Americans underestimate what they’ll need for healthcare in retirement. On average, people expect to spend about $75,000, which is less than half of what Fidelity projects. This gap underscores the importance of thorough financial planning to ensure you’re prepared for these expenses.
“Healthcare costs are among the most unpredictable in retirement planning,” said Robert Kennedy, senior vice president of workplace consulting at Fidelity. “With the fall open enrollment period approaching, it’s an excellent time for Americans to take charge of their financial planning. The best time to prepare for healthcare costs is well before they become a reality.”
This year’s nearly 5% rise in projected healthcare expenses follows a period of stability last year when the Inflation Reduction Act provisions helped offset rising Medicare costs.
Fidelity’s annual Health Care Cost Estimate assumes the average retiree will be covered by traditional Medicare, including Part A and Part B for hospital and doctor visits, as well as Part D for prescription drugs. However, it doesn’t include other out-of-pocket expenses like Medicare premiums, over-the-counter medications, dental and vision care, and long-term care. Retirees need to budget for these additional costs independently.
Drug costs are a major part of healthcare expenses. For example, Medicare Part D covers certain medications for diabetes and cardiovascular health but doesn’t cover these drugs when used for weight loss.
As of April 2024, 67.3 million Americans were enrolled in Medicare, with 50.4% choosing Medicare Advantage plans, according to the Centers for Medicare and Medicaid Services. Kennedy mentioned that Fidelity might consider Medicare Advantage costs in future studies as more people opt for this coverage.
Long-term care is another significant expense. The Genworth Cost of Care report indicates that the median cost for assisted living is $5,350 per month, while a private room in a nursing home costs around $9,733 per month. The report also notes that as many as seven out of ten people will require some form of long-term care during their lives.