$185,500 in Retiree Healthcare Costs

A client called me a few weeks ago, genuinely rattled. She'd just read that Fidelity's newest estimate puts average retiree healthcare costs at $185,500 for a single person retiring in 2026 — up 7.5% from last year alone. For a married couple, that combined figure climbs to $371,000.

"I thought Medicare covered most of this," she said.

She's not alone in that assumption. Fidelity's own research found that 54% of pre-retirees incorrectly believe Medicare will cover all of their health expenses in retirement. It won't — and the gap between expectation and reality is exactly where financial plans quietly break down.

Where does $185,500 actually go?

This figure assumes a 65-year-old retiring in 2026, enrolled in Original Medicare (Parts A and B) plus Part D prescription coverage. It does not include long-term care, which can add substantially more. Of the total:

• 45% goes to monthly premiums for Medicare Parts B and D
• 48% covers cost-sharing — copayments, coinsurance, and deductibles for hospital visits, outpatient care, and services Medicare doesn't fully cover
• 7% covers out-of-pocket prescription costs not covered by Part D

The number has climbed faster in recent years than most people expect — up roughly 4% in 2024, 5% in 2025, and now 7.5% this year. When Fidelity first published this estimate in 2002, the lifetime figure was $80,000. It has more than doubled since.

Why this matters more for business owners specifically.

If you're self-employed or run a small business, you don't have an employer picking up part of your health insurance costs in retirement the way a corporate employee might. You're funding all of it yourself — which makes proactive planning even more important, and also gives you more tools to do something about it.

The most underused tool: your HSA.

If you have a high-deductible health plan, a Health Savings Account offers what's often called a triple tax benefit: contributions are deductible, growth is tax-free, and withdrawals for qualified medical expenses are never taxed. Unlike a Flexible Spending Account, HSA balances carry over indefinitely — meaning dollars you contribute at 45 can still be sitting there, growing, when you're paying Medicare premiums at 72.

For 2026, the contribution limits are $4,400 for individual coverage and $8,750 for family coverage, with an additional $1,000 catch-up contribution available at age 55+. Despite these benefits, roughly 40% of HSA holders haven't invested their balance at all — they're sitting in cash, missing out on decades of potential growth.

A few planning questions worth asking yourself now:

• If you're eligible for an HSA and not maxing it out, what would it take to change that this year?
• Have you built a realistic healthcare cost estimate into your retirement number, or are you working off a figure that assumes Medicare covers "most of it"?
• If you're within 10 years of retirement, have you modeled what Medicare Part B and D premiums (which are income-adjusted) might look like based on your projected retirement income?

The $185,500 figure isn't meant to be alarming for its own sake — it's meant to be a planning input. The retirees who handle this well aren't the ones who happened to guess right. They're the ones who built the number into their plan a decade or two before they needed it.

If healthcare costs haven't been explicitly built into your retirement projections, that's a conversation worth having sooner rather than later. Click Book A Meeting.

FAQ: Healthcare Costs in Retirement

1. How much does healthcare cost in retirement?

Fidelity's 2026 estimate puts average lifetime healthcare costs at $185,500 for a single person retiring at age 65, and roughly $371,000 for a married couple. This figure is up 7.5% from the prior year and covers a retiree enrolled in Original Medicare (Parts A and B) plus Part D prescription drug coverage.

2. Does Medicare cover all healthcare costs in retirement?

No. Fidelity's research found that 54% of pre-retirees incorrectly believe Medicare will cover all of their health expenses in retirement, but it doesn't. Medicare Parts B and D still require monthly premiums, and out-of-pocket cost-sharing — copayments, coinsurance, and deductibles — makes up nearly half of a typical retiree's total healthcare spending.

3. What does the $185,500 retiree healthcare estimate actually include?

Of the total, 45% goes toward monthly premiums for Medicare Parts B and D, 48% covers cost-sharing expenses like copayments, coinsurance, and deductibles for hospital and outpatient care, and 7% covers out-of-pocket prescription costs not covered by Part D. Importantly, this estimate does not include long-term care costs, which can add substantially more.

4. How fast are retiree healthcare costs rising?

Faster than many people expect. Fidelity's estimate rose roughly 4% in 2024, 5% in 2025, and 7.5% in 2026. When Fidelity first published this annual estimate in 2002, the lifetime figure was $80,000 — meaning it has more than doubled in just over two decades.

5. Why is retirement healthcare planning especially important for business owners?

Self-employed individuals and small business owners don't have an employer subsidizing part of their health insurance costs in retirement the way a corporate employee typically does. That means the full cost of coverage falls on the individual, which makes proactive planning — and taking advantage of tools like HSAs while still working — more important than it is for a traditional employee.

6. What is the triple tax benefit of a Health Savings Account (HSA)?

An HSA offers three tax advantages at once: contributions are tax-deductible, the account grows tax-free, and withdrawals for qualified medical expenses are never taxed. Unlike a Flexible Spending Account, HSA balances roll over indefinitely rather than resetting each year, so funds contributed decades before retirement can still be available — and growing — when retirement healthcare costs arrive.

7. What are the HSA contribution limits for 2026?

For 2026, HSA contribution limits are $4,400 for individual coverage and $8,750 for family coverage, with an additional $1,000 catch-up contribution available for individuals age 55 and older. Eligibility requires being enrolled in a qualifying high-deductible health plan.

8. Should I invest my HSA balance instead of keeping it in cash?

For most people planning to use their HSA for retirement healthcare costs rather than near-term expenses, investing the balance rather than holding it in cash allows for decades of potential tax-free growth. Despite this, roughly 40% of HSA holders currently leave their balance uninvested in cash, missing out on that long-term compounding opportunity.