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Retirees may be underestimating health care costs

Premiums, copays, and out-of-pocket costs

Updated:

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Mark Huffman
Reporter

Mark Huffman has covered consumer issues since 2004, with a special focus on protecting and empowering older adults. A former news correspondent for the Associated Press Radio Network, Westwood One, and ConsumerAffairs, Mark brings decades of journalistic experience to RetirementLiving.com. He is passionate about giving consumers a voice and helping them make informed decisions. Mark has also created educational content, including Senior Scam Alert, a video resource designed to help seniors recognize and avoid fraud. He holds a B.A. from the University of Kentucky and lives with his family in Richmond, Virginia.

Photo by JESHOOTS.COM on Unsplash

Key Insights

  • Average retiree health care costs climb to $172,500 in 2025
  • One in five Americans have never considered medical expenses in retirement planning
  • HSAs offer a tax-advantaged opportunity to prepare for health care costs

Fidelity Investments has released its 24th annual Retiree Health Care Cost Estimate, predicting that a 65-year-old retiring in 2025 will need an average of $172,500 to cover health care and medical expenses throughout retirement. 

The new estimate represents a 4% increase from last year and continues a long-term upward trend since the firm first published an $80,000 estimate in 2002.

The figure assumes the retiree is enrolled in Medicare Parts A, B, and D, and includes premiums, copays, and out-of-pocket costs for medical and prescription drugs, but excludes long-term care expenses.

Rising costs, lower confidence

This year’s estimate comes amid declining confidence in retirement readiness, with many Americans falling short in their planning. According to Fidelity’s recent research:

  • One in five Americans has never factored health care needs into their retirement planning.
  • 25% of Gen X adults say they’ve never considered these costs.
  • 17% across all generations admit they’ve taken no action at all to prepare for health-related expenses in retirement.

“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. “With the right tools and guidance, pre-retirees and retirees alike can take greater control of their financial futures by beginning the planning process as soon as possible.”

Health savings accounts

Fidelity highlights Health Savings Accounts (HSAs) as powerful yet underused financial tools for managing future health costs. Offering a rare triple-tax advantage – pre-tax contributions, tax-free investment growth, and tax-free withdrawals for qualified medical expenses – HSAs are gaining popularity, but usage gaps remain.

According to the report:

  • Only 23% of Americans contribute to an HSA to prepare for retirement health care.
  • Just 30% of HSA users invest their assets, missing a key opportunity for growth.
  • Among people aged 55 – 64, only 15% have an HSA, and more than half are unaware that HSAs can double as long-term retirement savings vehicles.

“HSAs are more than just a short-term savings tool,” said Steve Betts, head of Fidelity Health. “When used as part of a well-crafted retirement plan, the tax-advantaged nature of HSA savings can offer growth potential that can help reduce the burden of health care in retirement.”