Why $185,500 Might Not Even Cover Your Healthcare in Retirement
According to Fidelity’s 2026 Retiree Health Care Cost Estimate, the average 65-year-old retiring this year should expect to spend roughly $185,500 on healthcare and medical expenses throughout retirement, up 7.5% from last year’s estimate, one of the largest single-year increases since Fidelity began publishing the study 25 years ago. And that figure comes with fine print: it’s a per-person number, it uses base premiums for Medicare parts A, B, and D, and it doesn’t include the cost of long-term care. For many retirees, actual costs will run much higher.
Changes in legislation alone will not address the issue here. Rising healthcare costs are a structural trend, driven by medical inflation, longer lifespans, and the rising cost of care itself. Even countries with well-run public or universal healthcare systems are facing their own version of the same challenge.
Why Healthcare Costs Keep Outpacing Everything Else
Healthcare inflation has a long history of running ahead of general inflation and, in many years, ahead of wage growth and Social Security cost-of-living adjustments (COLAs) as well. Prescription drug prices, hospital and provider costs, and a persistent labor shortage in caregiving fields all continue to push costs higher.
That last point is worth sitting with. Because Social Security COLAs are tied to a general measure of inflation rather than medical-cost inflation specifically, benefit increases often fail to keep pace with what retirees actually spend on healthcare. Over a 20 or 30-year retirement, that gap compounds and quietly erode purchasing power.
Medicare Isn’t Free, and It’s Getting Pricier
It’s a common misconception that Medicare covers the bulk of a retiree’s medical expenses. In practice, Medicare covers roughly 60% to 65% of the average retiree’s healthcare costs. The rest comes out-of-pocket: premiums, deductibles, copays, and services Medicare doesn’t cover at all, including most dental, vision, hearing, and long-term care.
On top of standard premiums, higher-income retirees pay an Income-Related Monthly Adjustment Amount, or IRMAA, on top of their 2026 Medicare Part B premium. IRMAA surcharges are based on income from two years prior, which means a large Roth conversion or capital gain today can quietly increase Medicare premiums two years down the road. It’s one more reason why income timing, not just tax-bracket management, belongs in the planning conversation every year, not just at tax time.
The Cost Most People Forget: Long-Term Care
Most healthcare cost conversations stop at Medicare. But for many retirees, the far bigger risk sits outside Medicare’s coverage entirely: long-term care. According to the 2025 CareScout Cost of Care Survey, the median annual cost of care in the U.S. now stands at:
- Private nursing home room: $129,575 per year
- Assisted living: $74,400 per year
- In-home caregiver (44 hours per week): $80,080 per year
A multi-year stay in any of these settings can easily deplete a retiree’s entire lifetime healthcare budget on its own. There are a few ways to prepare: self-funding through dedicated savings, traditional long-term care insurance, hybrid life insurance/long-term care policies, or, as a last resort, Medicaid planning. Each approach carries real tradeoffs in cost, flexibility, and timing, so it’s worth a conversation well before care is needed.
Longevity Makes This Worse, Not Better
Rising costs are compounded by a second trend: people are living longer. More years in retirement means more years of exposure to healthcare inflation, and higher cumulative odds that at least one spouse will need extended care at some point.
For a healthy 65-year-old couple today, there’s a meaningful chance that at least one spouse lives well past 90. A long life is a blessing, but it can also carry heavy concerns around care and cost. The reason isn’t that people are getting sicker. It’s that fewer people die quickly from the acute events that used to end lives early, like heart attacks and strokes. That means more people are living long enough to reach the ages where dementia and other long-term care needs become more common, even though the odds of developing dementia at any given age have held steady or even improved.
Comfort and confidence come from preparation, and financial plans must reflect reality: a 30-year retirement, not the 20-year one people used to plan for, healthcare costs that compound faster than everyday spending, and an intentional plan for long-term care.
What This Means for Your Plan
None of this is meant to be discouraging, it’s meant to be actionable. A few concrete steps may make a real difference:
- Treat your HSA as a healthcare fund for later, not a spending account for now. Current laws give health savings accounts a triple tax advantage and no required distributions, making them an efficient way to prepare for future medical costs if you’re still able to contribute.
- Plan for the Medicare gap years if you’re retiring before 65. COBRA, ACA marketplace plans, or part-time work with benefits can bridge the coverage gap.
- Build healthcare into your withdrawal strategy from day one, rather than treating it as a surprise expense. A dedicated healthcare “bucket,” separate from discretionary spending, keeps a bad year from derailing the rest of the plan.
- Revisit long-term care coverage decisions earlier rather than later. Policies become more expensive, and harder to qualify for, as you age or if your health changes.
- Manage income with IRMAA in mind, particularly in the two years before and after a big financial decision like a Roth conversion or a home sale.
Plan for the Cost You Can’t Legislate Away
Tax laws may continue to change, and it’s worth planning with those changes in mind as they are unfolding. But healthcare costs are a different kind of risk, one that won’t be legislated away and won’t wait for a more convenient year. Building a durable plan now, one that accounts for both Medicare’s limits and the real possibility of long-term care, is valuable both for yourself and your loved ones.
If it’s been a while since you stress-tested your retirement income plan against rising healthcare costs, now is a good time to have that conversation.
Advisory Services offered through Peak Asset Management, LLC, an SEC registered investment advisor. The opinions expressed and material provided are for general information, and they should not be considered a solicitation for the purchase or sale of any security. Investing involves risk, including the possible loss of principal. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. All strategies and services described involve risks, tax implications, and potential limitations, and may not be appropriate for every investor; clients should consider these factors carefully before making decisions. This content is developed from sources believed to be providing accurate information and may have been developed and produced by a third party to provide information on a topic that may be of interest. This third party is not affiliated with Peak Asset Management. It is not our intention to state or imply in any manner that past results are an indication of future performance. Copyright © 2026 Peak Asset Management
Sources
Fidelity Investments — 25th Annual Retiree Health Care Cost Estimate (press release)
Genworth/CareScout — 2025 Cost of Care Survey Results (press release)
Kiplinger — Medicare Premiums 2026: IRMAA Brackets and Surcharges for Parts B and D
