Healthcare costs continue to rise for retired seniors

A 65-year-old retiring this year can expect to incur a whopping $165,000 in health care and medical expenses throughout retirement, according to new research from Fidelity Investments.

That figure, highlighted in Fidelity’s 23rd annual Retiree Health Care Cost Estimate, reflects an increase of nearly 5 percent from 2023 and is more than double the initial estimate from 2002.

“Health care costs are among the most unpredictable expenses, especially when it comes to retirement planning,” Robert Kennedy, senior vice president of workplace consulting at Fidelity, said in a statement.

“As we approach the fall open enrollment period for health care benefits, it’s a great time for Americans to be proactive with their financial planning efforts,” Kennedy said. “The best time to plan for those health care costs is long before they occur.”

While estimated health care costs continue their upward arc, many Americans remain disconnected from the reality of these expenses. Based on Fidelity’s research, the average American anticipates spending around $75,000 on health care in retirement, less than half of the firm’s estimate.

Fidelity’s approximation is based on an individual enrolled in traditional Medicare, which includes Part A and Part B covering most hospital care and doctor visits, as well as Part D which covers prescription drugs. However, many nearing retirement age find the process of selecting Medicare coverage challenging, with 55 percent of respondents in the report believing it will be difficult to enroll in Medicare, and half expecting to feel overwhelmed or confused when choosing their plan.

And while nearly two-thirds (63 percent) of older Americans plan to review their Medicare options annually, those aged 75 and over are the least likely to do so, despite them being in a particularly fraught physical state.

Adding to the challenge are costs not covered by Medicare, such as Medicare premiums, over-the-counter medications, dental and vision care, which all fall on retirees to manage on their own. Beyond that, Fidelity pointed to other broad systemic trends such as people’s longer life spans and health care inflation surpassing general inflation rates.

While Americans may find it challenging to balance their day-to-day expenses with long-term needs, Fidelity suggested they can take several steps to prepare for future health challenges, including maximizing their use of health savings accounts.

“There is always opportunity to provide education around the cost of health care and the tools Americans have at their disposal to manage those expenses,” Kennedy said.