Retired Women Face 18% Higher Healthcare Bills As Costs Soar To $185K
A 65-year-old retiring in 2026 can expect to spend $185,500 on healthcare during retirement, up 7.5% in just one year, according to Fidelity Investments.
For women, the math is worse.
Women are likely to spend up to 18% more on healthcare than men, largely because they live about five years longer. Yet they often enter retirement with less savings after lower lifetime earnings and time away from work for caregiving, according to Fidelity.
That double whammy makes planning critical, Fidelity experts said Thursday during a webinar on financing health care later in life.
“Women are more likely to face higher lifetime healthcare costs than men,” said Michelle Howell, vice president and financial consultant at Fidelity. “Of course, that means more years of healthcare spending and longer retirement timeframes to fund.”
The $185,500 estimate assumes roughly 20 years in retirement and works out to about $9,000 annually. But Americans dramatically underestimate the expense. They expect to spend only about $75,000, said Sarah Haflett, Fidelity vice president of health care thought leadership.
And the $185,500 tab does not include long-term care, she warned.
“In some years, that health inflation rate has outpaced the consumer price index by almost a two-to-one margin,” Haflett said. Costs can also vary dramatically based on health and geography.
So how can advisors help clients prepare?
One powerful tools is the health savings account (HSA). Howell calls an HSA a “healthcare Roth IRA.” Contributions are tax deductible, assets grow tax-deferred and withdrawals for qualified medical expenses are tax-free.
Rather than spending HSA balances on today’s medical bills, clients who can afford to pay those expenses from other funds can invest their HSA and allow it to compound, Howell said.
It’s never too late to start saving, they all agreed.
Fidelity calculated that someone maximizing HSA contributions from age 55 through 65, including catch-up contributions and assuming a 6% annual return, could accumulate about $75,000 in federal income tax-free money for healthcare by 65.
“There’s no time left to save” is a myth, Haflett said.
For clients without access to an HSA, Howell said a Roth IRA may be the next-best alternative because qualified withdrawals can provide tax-free money for medical bills or other retirement expenses.
Advisors should also pay close attention to Medicare’s income-related monthly adjustment amount, or IRMAA.
Higher-income retirees pay Medicare Part B and Part D surcharges based on taxable income from two years earlier. That makes decisions beginning around age 63 particularly important.
Interest, dividends, pensions, Social Security, IRA distributions, Roth conversions, capital gains and even retirement payouts can push clients over an IRMAA threshold.
But avoiding the surcharge isn’t always the best strategy.
A large Roth conversion might trigger higher Medicare premiums today but reduce required distributions and lifetime taxes later.
“Sometimes long-term benefits of the strategy can outweigh the short-term pain” of IRMAA, Howell said.
Howell also offered a lesser-known IRMAA escape hatch.
When a retiree’s income falls because of a qualifying life-changing event, the client can file Social Security’s Form SSA-44 and request that Medicare recalculate premiums using current income rather than the older tax return.
“We find many retirees might be able to benefit from that reduction,” Howell said.
Retirement timing itself can also save substantial money.
Howell encourages some couples to consider staggered retirement, allowing one spouse to continue working and carrying employer health insurance while the other retires.
She tells clients to think of private insurance before Medicare eligibility as a “healthcare mortgage payment.”
The broader message for advisors is to treat healthcare as a major retirement liability rather than another line item.
“The costs are not fixed,” Howell said. “The timing and the magnitude of the costs are unknown.”
