Here’s How Much Health Care Could Cost If You Retired Today (Brace for 6 Figures)

Millions of seniors now get a $6,000 tax deduction thanks to federal tax reform last year. Unfortunately, the money it saves them may not stay in their pockets for long before they have to spend it on health care costs.

A single 65-year-old retiring in 2026 can expect to spend an average of $185,500 on health care over the course of their golden years, according to Fidelity’s 25th annual Retiree Health Care Cost Estimate. That figure is up 7.5% since last year.

Of that $185,500, Fidelity estimates that 7% would go to out-of-pocket prescription drug costs, 45% would go to Medicare premiums and 48% would go to other medical expenses, on average.

Fidelity notes that higher projection comes just after its findings in a separate study that finds retirement confidence is on the rise, partly due to better awareness of and preparation for the high cost of health care in retirement.

The annual estimate assumes that a retiree is enrolled in traditional Medicare and in a Medicare Part D plan, which covers the cost of many prescription drugs. The estimate does not include long-term care expenses.

Fidelity also notes that its research has found that 54% of pre-retirees incorrectly think that Medicare will cover all medical expenses. (Learn more about what you’re on the hook for in your golden years in “Retirees, Beware: Medicare Will Not Cover These 11 Medical Costs.”)

The good news about Fidelity’s estimate is that it might be an overestimate.

For example, a 2022 analysis by the Center for Retirement Research at Boston College, which was based on real-world data, found that out-of-pocket health care costs would run $67,260, on average, for a 65-year-old household. For a couple, that’s $33,630 per person — or roughly $38,000 in 2026 dollars.

How an HSA can boost your retirement

If you are concerned about rising health care costs, opening a health savings account (HSA) is a great way to boost your retirement. As we point out in “The HSA Tax Trick Retirees Swear by — and 5 Other Reasons to Use It for Retirement“:

“A health savings account’s huge selling point is the fact that it is triple tax-advantaged:

• You get a tax deduction during the year of contribution.
• The money grows tax-free.
• You withdraw the money tax-free when it’s used for qualified health expenses.

In essence, if you use HSA money to pay for health care expenses, it’s never taxed. Never.”

What’s more, some HSA providers, such as Lively, allow you to invest the money in your HSA so it can generate higher returns until you need to withdraw it.

To be eligible for an HSA, you must have a high-deductible health insurance plan and otherwise qualify.