No relief: Retirees' out-of-pocket healthcare cost are spiraling

Yahoo

6 days ago

Retirees are going to need to have a substantial chunk of change saved to pay for their healthcare costs.
Fidelity's annual survey of estimated healthcare costs in retirement shows that a 65-year-old retiring this year can expect to spend an average of $172,500 in healthcare and medical expenses out-of-pocket throughout retirement, up 4% from last year's expectation of $165,000.
The estimate assumes enrollment in traditional Medicare (Parts A and B) and Medicare Part D, which includes premiums, co-payments, and other out-of-pocket costs for medical care and prescription drugs.
It could be far higher for some folks.
Fidelity's estimate does not include long-term care expenses which, of course, can be eye-popping.
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'About 80% of those ages 65 and over will require some long-term care, with nearly 20% requiring high-intensity care for more than three years,' said Anqi Chen, associate director of savings and household finance at the Center for Retirement Research at Boston College.
Consider this: An apartment in an assisted-living facility had an average rate of $74,148 a year in 2024, according to the National Investment Center for Seniors Housing & Care — and costs go up as residents age and need more care. Units for dementia patients can run more than $94,000.
Costs keep on rising
The Fidelity estimate has soared since it first ran this calculation in 2002. At that time, medical costs were estimated at $80,000 for a single retiree. Of course, there are plenty of caveats to consider when computing your figure — what you spend in retirement for medical care will depend on where you live, your overall health, and how many years you will live in retirement.
Nonetheless, basic costs are continuing to rise. In 2025, for example, the monthly Part B premium rate is $185, up from $174.70 a year ago. The estimated monthly premium for 2026 is $206.20.
'Planning for healthcare costs in retirement is a crucial step in building long-term financial security, yet it's often overlooked,' John Burns, vice president at Fidelity Investments, told Yahoo Finance.
Every generation is unprepared
Recent Fidelity research shows 1 in 5 Americans say they have never considered healthcare needs during retirement — a figure that jumps to 1 in 4 among Gen X.
Few retirees have budgeted for that kind of outlay and finding ways to grapple with it is not something you can avoid.
About 15% of the average retiree's annual expenses will be health-related, per Fidelity. And nearly 4 in 10 retirees report health care expenses are higher than they expected, according to a survey by the Employee Benefit Research Institute and Greenwald Research.
Increasing out-of-pocket healthcare costs, including the likelihood of long-term care expenses, is a huge concern for retirement security, said Richard Johnson, director of the Program on Retirement Policy at the Urban Institute.
Even now, 1 in 10 people age 65 or older with healthcare debt owe $10,000 or more, according to a KFF study.
Potential but underutilized way to defray costs
For younger workers, one way to prepare for higher future costs is to invest in a health savings account (HSA).
An HSA lets you put money in on a tax-free basis, lets it build up tax-free, and lets it come out tax-free for qualified healthcare expenses. (One downside: Some states assess state taxes.)
To put money into an HSA, you must be enrolled in a high-deductible health plan where you pay a lower premium per month but a higher annual deductible.
You can also open an HSA as a self-employed freelancer or business owner if you have a qualified high-deductible health plan. Your contributions roll over year after year and are yours to take along when you retire or change employers.
The 2025 contribution limit for an HSA is $4,300 for individuals and $8,550 for families. Individuals who are 55 or older can contribute an additional $1,000. These accounts got small tweaks expanding access in Trump's tax package.
Read more: HSA contribution limits: Here's how much you can save
'HSAs are a smart way to plan ahead for the rising cost of healthcare and help protect your retirement income,' Burns said. 'Save as much as you can, when you can, and make sure you leverage accounts where your savings can be invested.' In the real world, though, most account holders pull funds from their HSAs to cover current medical bills. The average withdrawal from an HSA account last year was roughly $1,300, according to HSA advisory firm Devenir.'People use it as a checking account, not an investment account,' Paul Fronstin, director of health benefits research EBRI, said. They're using it to cover current healthcare expenses right now.
Plus, maxing out a contribution each year is unrealistic for many workers. 'Most people have competing needs ... if you're coming out of school, you've got student loans, if you've got children, or you're buying a house, trying to save for retirement, helping your kids with their school, and so on,' he said.
Read more: How much should I have saved by 50?
Only about 3.2 million health savings accounts have at least a portion of their HSA dollars invested, per Devenir.
Most just leave the money in cash or spend on current bills and lose sight of one of the account's key advantages that can help retirees meet these costs down the road.
Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a career and retirement strategist and the author of 14 books, including the forthcoming "Retirement Bites: A Gen X Guide to Securing Your Financial Future," "In Control at 50+: How to Succeed in the New World of Work," and "Never Too Old to Get Rich." Follow her on Bluesky.
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