Clients Could Spend $185,500 on Healthcare in Retirement. Don’t Panic

Sorry to alarm you, but one of the biggest expenses your clients will face in retirement is going up. 

The average 65-year-old retiring in 2026 will need approximately $185,500 to cover future healthcare expenses, according to a new report from Fidelity. That’s up 7.5% from last year, the largest jump in more than a decade. 

Time to panic? Not necessarily, say advisors. Costs for healthcare in retirement have always been high, so Fidelity’s latest projection isn’t exactly surprising, and there are reliable methods for meeting the challenge. Contributing to and investing within health savings accounts is one sound strategy. Clients should also carefully consider decisions about Medicare and Social Security claiming, while withdrawals from 401(k)s and IRAs should be organized as part of an overall tax-management strategy. Bottom line: Planning ahead can make sky-high healthcare costs much more manageable.

Hey, Big Spender 

The key to confidence about healthcare spending in retirement is creating an individualized plan that recognizes a person’s unique circumstances, said Davi Kutner, partner at Aprio Wealth Management. “Spending $185,000 on healthcare in retirement looks a lot different if it’s over a period of 30 years or 15 years,” Kutner said. “What worries people is that they have no idea how long they’ll need their money to last. That’s really where the value of working with a skilled financial advisor is.” 

When a good long-term plan is put in place that balances risk and return, Kutner said, people can afford to pay for care in retirement, especially when factoring in Social Security and Medicare benefits. “Even in cases where long-term care is needed, people spend a lot less on things like travel or going out to eat. The numbers are scary in isolation, but it’s important to understand the context.”

So, how do those costs break down? According to Fidelity’s research: 

• Medicare Parts B and D premiums comprise 45%. 
• Medicare co-payments, co-insurance and deductibles represent 48% of spending.
• Out-of-pocket prescription drug expenses round out the final 7%. 

Make a Plan. Ron Mastrogiovanni, CEO of the health spending analytics company HealthView Services, said his firm’s latest research aligns with the Fidelity report. One important caveat, however, is that their numbers are averages. Actual spending varies a lot depending on location, health status and coverage decisions.

For example, a 65-year-old Missouri couple living to 85 (husband with high cholesterol) and 82 (wife with type 2 diabetes) has anticipated lifetime costs of $713,000, per HealthView Services data. They would actually spend more (about $1.01 million) if they were healthy and lived to age 88 and 90, respectively, because of additional years with higher annual premiums and late-life long-term care needs.