Fidelity warns health care could derail retirement

Health care as part of your retirement plan is not something most people budget for with much precision. Fidelity Investments says the gap between expectations and reality is one of the biggest threats to retirees’ financial security nationwide.

You may have spent decades saving for retirement, hoping it will last through your final years. But Fidelity’s research shows that health care could quietly consume a quarter of your total retirement savings if you do not prepare for it.

The numbers in Fidelity’s latest report are sobering, and the strategies required to manage them deserve your full attention before you leave the workforce.

Fidelity’s $345,000 retirement health care estimate keeps climbing 

Fidelity’s 2025 Retiree Health Care Cost Estimate projects that a single 65-year-old retiring this year will need roughly $172,500 to cover medical expenses throughout retirement, according to Fidelity’s annual estimate.

For a couple, that figure balloons to approximately $345,000 in after-tax dollars, and none of that includes long-term care costs such as nursing homes or assisted living, according to Fidelity’s Retiree Health Care Cost Estimate.

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The 2025 number represents a 4.5% jump from the prior year’s estimate of $165,000 per individual and has more than doubled since Fidelity first started tracking this figure at $80,000 in 2002, Fidelity’s research shows.

The average American believes they will spend about $75,000 on health care in retirement, which is less than half of what Fidelity projects the real cost to be, according to its research.

“Year after year, so many Americans underestimate how much they’ll need to save to cover health care costs in retirement,” said Shams Talib, head of Fidelity Workplace Consulting.

Medicare covers less than most retirees expect it to

Medicare is the federal health insurance program available to individuals aged 65 and older, and it serves as the foundation of most retirees’ health care coverage. But the program’s structure leaves significant gaps you need to understand before relying on it as your primary safety net.

The standard monthly premium for Medicare Part B will be $202.90 in 2026, a $17.90 increase from $185.00 in 2025, according to the Centers for Medicare & Medicaid Services.

The annual Part B deductible rises to $283 in 2026, and the Part A hospital deductible jumps to $1,736 per benefit period, CMS reports.

Higher-income retirees face additional surcharges through the Income-Related Monthly Adjustment Amount (IRMAA), which can push Part B premiums as high as $689.90 per month, based on income reported two years prior, according to CMS.

Medicare isn’t a full safety net, and rising premiums, deductibles, and income-based surcharges could leave retirees paying far more than expected.

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Original Medicare does not cover dental, vision, hearing, or long-term care

One of the most common misconceptions about Medicare is that it covers everything a retiree will need as they age. Original Medicare, meaning Parts A and B, does not pay for routine dental care, vision exams, hearing aids, or long-term care services.

Medicare Advantage plans, also called Part C, bundle Original Medicare benefits with extras like dental and vision coverage, but use provider networks that may limit your choices depending on where you live or travel during retirement.

Medigap supplemental insurance can help fill out-of-pocket gaps from Original Medicare, but these policies carry their own monthly premiums that vary by age, location, and tobacco use, and you cannot use Medigap with a Medicare Advantage plan.

“I find that there is often a huge misunderstanding about the potential cost of health care in retirement,” said Fidelity Vice President and Financial Consultant Jennifer Sellwood.

Long-term care is the expense that catches most families off guard

Long-term care is the single largest health care risk that Medicare does not cover, and the costs can consume an entire retirement savings account in just a few years of sustained need. The national median cost of a semi-private room in a nursing home reached $114,975 per year in 2025, according to the CareScout Cost of Care Survey.

A private nursing home room now costs a median of $129,575 annually, and assisted living communities run approximately $74,400 per year at the national median level, which means even the more affordable care options still represent a major financial commitment.  

“When it comes to long-term financial planning around health care, it’s about each individual and their personal health situation,” said Sellwood.

An individual who reaches age 65 has about a 70% chance of needing some form of long-term care services during the rest of their lifetime, according to the U.S. Department of Health and Human Services.

You have four basic options to fund long-term care if you need it.

Personal savingsGovernment benefits like MedicaidTraditional long-term care insuranceHybrid insurance products that combine long-term care coverage with life insurance or annuity benefits

Each option has trade-offs depending on your age, health, family situation, and how much risk you are willing to take on yourself.

“A financial professional can model the impact those costs could have on your overall retirement plan, and talk through the options for covering them,” said Kerry Beeber, an advanced planner with Fidelity.

If you are considering insurance, starting the conversation in your 50s can lead to better pricing and fewer potential medical disqualifications.

Health savings accounts offer a triple tax advantage that most people overlook

A health savings account is one of the most powerful tools available for building a healthcare reserve before retirement, and most Americans are not using it to its full potential.

HSA contributions reduce your taxable income. In addition, the money inside the account grows tax-deferred, and withdrawals for qualified medical expenses come out completely tax-free.

For 2026, the IRS allows individuals to contribute up to $4,400 per year to an HSA, with the family limit set at $8,750, according to IRS Revenue Procedure 2025-19. If you are 55 or older and not yet enrolled in Medicare, you can add an extra $1,000 in catch-up contributions annually.

Key HSA benefits and limitations for retirees:HSA funds can pay for Medicare Part B and Part D premiums, plus deductibles, copays, and prescription drug costs after age 65.HSA money cannot be used to pay for Medigap supplemental insurance premiums under current tax rules.After age 65, you can withdraw HSA funds for non-medical expenses without penalty, though you will owe regular income tax on those amounts.Only 15% of Americans aged 55-64 currently have an HSA, and more than half of them do not realize it functions as a retirement savings tool, according to Fidelity’s research.

“Using the HSA for its intended purpose is where you’ll get the most benefits from it,” said Beeber, noting that non-spouse beneficiaries will receive the full HSA balance as taxable income upon the account holder’s death.

Retiring before 65 creates a health care coverage gap

If you retire before age 65, you will lose employer-sponsored health insurance and will not yet qualify for Medicare, which creates a potentially expensive gap in your health care coverage. During this period, you need to secure coverage through another source to avoid going uninsured or facing financial exposure from unexpected medical bills.

Your options during this gap include transitioning to a spouse’s employer plan if they are still working, enrolling in COBRA continuation coverage from your former employer, purchasing a plan through the Affordable Care Act marketplace, or finding part-time work that offers benefits.

“There’s no single right answer; you’ll need to explore all the options available to see which choice meets your health care needs and budget,” said Jason Webb, a regional vice president with Fidelity Investments Life Insurance Company.

Five steps you can take to prepare for health care in retirementRun your own health care cost estimate. Use Fidelity’s free online retirement health care cost tool to get a personalized projection based on your age and expected retirement date.Maximize your HSA contributions every year you are eligible. Treat your HSA like a retirement account by investing the balance instead of spending it on current medical expenses whenever possible.Research Medicare options at least 12 months before turning 65. Compare Original Medicare plus Medigap against Medicare Advantage plans to determine which structure fits your health needs and budget.Explore long-term care insurance options in your 50s: Premiums are lower, and qualification standards are easier to meet when you apply before chronic health conditions develop.Build a separate health care reserve fund outside your retirement accounts: Even a modest dedicated savings buffer can reduce the pressure on your 401(k) or IRA withdrawals during years when medical costs spike.

“While one can never truly be prepared for health care events, we can have conversations around planning for the unexpected,” said Sellwood. “The earlier we start the conversation, the more prepared we can be.”

Related: Fidelity says $1 million won’t save your retirement

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