Millions of Americans spend decades preparing for retirement, only to discover one of the biggest expenses isn’t housing, travel, or taxes. It’s healthcare.

A new estimate from Fidelity suggests that a 65-year-old retiring today should expect to spend $185,500 on healthcare throughout retirement. That’s a 7.5% increase from last year and the steepest annual jump in more than a decade.

Even more concerning, more than half of Americans approaching retirement don’t realize Medicare leaves them responsible for thousands of dollars in costs.

Retirement Healthcare Costs Just Hit a New High

According to Fidelity’s 25th Annual Retiree Health Care Cost Estimate, a typical 65-year-old retiring in 2026 will need approximately $185,500 to cover medical expenses during retirement.

That’s up from $172,500 just one year ago.

The 7.5% increase marks the largest annual jump since 2015 and reflects several powerful trends working against retirees:

• Rising healthcare prices
• Increased use of medical services
• Growing costs associated with chronic health conditions
• Continued medical inflation outpacing general inflation

For many retirees, these expenses become one of the largest line items in their retirement budget.

The Medicare Misconception

One of the report’s most striking findings wasn’t the dollar figure.

It was that 54% of pre-retirees incorrectly believe Medicare will pay all of their healthcare costs.

The reality is far different.

While Medicare provides valuable coverage, retirees are still responsible for numerous expenses including:

• Monthly Part B premiums
• Part D prescription drug premiums
• Deductibles
• Copayments
• Coinsurance
• Prescription drug costs not fully covered

Many retirees don’t realize these expenses continue year after year.

Where the $185,500 Actually Goes

Fidelity broke down the projected lifetime healthcare costs into several major categories.

Approximately 45% comes from Medicare Part B and Part D premiums.

Another 48% comes from deductibles, copays, coinsurance, and other out-of-pocket medical expenses.

The remaining 7% represents prescription drug costs paid directly by retirees.

For 2026, the standard Medicare Part B premium alone is $202.90 per month, before considering drug coverage or supplemental insurance.

Traditional Medicare vs. Medicare Advantage

The report also highlights important differences between Medicare’s two primary coverage options.

Traditional Medicare offers broad access to healthcare providers but has no annual limit on out-of-pocket spending unless retirees purchase supplemental Medigap coverage.

Medicare Advantage plans often include prescription drug coverage and cap annual out-of-pocket costs. However, they generally require beneficiaries to stay within provider networks or pay significantly more.

For 2026, Medicare Advantage plans may cap annual out-of-pocket costs at:

• $9,250 for in-network care
• $13,900 when both in-network and out-of-network care are included

Many plans choose lower limits, but costs can still be substantial depending on medical needs.

The Biggest Expense Isn’t Even Included

Perhaps the most important detail in Fidelity’s estimate is what it doesn’t include.

The $185,500 projection excludes long-term care.

Medicare generally does not pay for ongoing assistance with activities such as:

• Bathing
• Dressing
• Eating
• Long-term nursing home care
• Extended in-home custodial care

Those expenses can easily reach hundreds of thousands of dollars over a retirement, depending on health needs and where someone lives.

One Tax-Advantaged Way to Prepare

For workers who haven’t yet enrolled in Medicare, a Health Savings Account (HSA) remains one of the most powerful retirement planning tools available.

HSAs offer three significant tax advantages:

• Contributions are tax deductible.
• Investments grow tax free.
• Qualified healthcare withdrawals are tax free.

Unlike Flexible Spending Accounts, HSA balances never expire and can continue growing for decades if invested.

Once someone enrolls in Medicare, they can no longer make new HSA contributions, but existing balances can still be used to pay many qualified medical expenses, including Medicare Part B and Part D premiums.

Why Investing May Matter

Healthcare inflation has historically risen faster than overall inflation, making cash savings alone increasingly difficult to keep pace.

While many HSA holders leave their balances sitting in cash, long-term investors often choose to invest at least part of their accounts in diversified portfolios that have greater potential to outpace rising medical costs.

New investment products are even beginning to target healthcare inflation specifically, reflecting growing concern that medical expenses could become one of retirement’s largest financial risks.

The Bottom Line

Healthcare has become one of the most overlooked expenses in retirement planning.

Fidelity’s latest estimate suggests today’s retirees should prepare for $185,500 in lifetime healthcare costs—even before factoring in the potentially enormous expense of long-term care.

For Americans who assume Medicare will cover everything, that misunderstanding could become one of the costliest retirement surprises they’ll ever face.