The Gap Between What People Expect and What They’ll Actually Pay
The annual Fidelity Investments Retiree Health Care Cost Estimate found that someone who turned 65 in 2024 can expect to spend $165,000 in combined health care expenses over the course of retirement. Yet the average American expects to spend only $75,000 on healthcare, which is less than half the real amount.
One year later, the 2025 estimate jumped by roughly four percent to $172,500, and retirees were no better prepared for the increase. That persistent gap between perception and reality is exactly what catches so many people off guard in the first years of retirement.
According to a 2024 study conducted by Jackson National Life Insurance Company and the Center for Retirement Research at Boston College, nearly two-thirds of pre-retired individuals surveyed are underestimating their expected retirement health care expenses. It is a strikingly consistent blind spot across age groups and income levels.
The 2026 Estimate Hits a Record High
Fidelity Investments published new research showing that a 65-year-old retiree will spend $185,500 on healthcare in 2026, up roughly 7.5 percent from the prior year. That is the highest figure in more than two decades of tracking by Fidelity.
Fidelity’s projection has gained speed over the last three years, climbing roughly four percent in 2024, five percent in 2025, and 7.5 percent in 2026. When Fidelity first published this annual benchmark in 2002, the estimated lifetime healthcare cost for a 65-year-old retiree stood at $80,000. The figure has now more than doubled, tracking a healthcare inflation rate that consistently outpaces the broader consumer price index.
What the Milliman Numbers Add to the Picture
A healthy 65-year-old man retiring in 2026 with original Medicare and a Medigap plan is projected to spend $297,000 on health care and medical treatment through the rest of his life, according to the 2026 Milliman Retiree Health Cost Index. A healthy 65-year-old woman retiring in 2026 is projected to spend $340,000 for health care over the course of her life.
A 65-year-old couple could expect to pay a combined total of roughly $601,000 under an Original Medicare with Medigap plus Part D plan. Those are not worst-case figures. They are projections for people who are considered healthy at the time of retirement.
Long-Term Care: The Cost Inside the Cost
In 2025, national median long-term care costs ranged from $2,058 per month for adult day healthcare at a community or assisted living facility to $10,798 per month for a private room at a nursing home, according to the Genworth Cost of Care Survey.
The U.S. Department of Health and Human Services’s Administration for Community Living data shows that about 70 percent of people turning 65 will need some type of long-term care at some point. Yet only 27 percent of those surveyed in the 2024 Jackson study believe they will require long-term care. That disconnect between likelihood and expectation is one of the most dangerous gaps in retirement planning today.
Using microsimulation modeling, the U.S. Department of Health and Human Services estimates that over half of Americans turning 65 today will develop a disability serious enough to require long-term services and supports, although many will need assistance for less than three years. For many families, this arrives as a complete financial shock.
Healthcare Inflation Is Outpacing Social Security Raises
HealthView Services’ 2026 Retirement Healthcare Costs Data Report shows that health-related cost inflation is expected to remain stubbornly high with a projected long-term inflation rate of 5.8 percent, while Social Security cost-of-living adjustments for 2027 are currently projected to rise at only 2.4 percent.
In 2026, Medicare Part B and Medicare Advantage premiums directly deducted from Social Security increased by 9.7 percent, from $185 in 2025 to $202.90 in 2026, while the Social Security COLA went from 2.5 percent in 2025 to 2.8 percent in 2026. The math is not favorable: premiums are rising at more than three times the rate of the benefit increase meant to offset them.
For a healthy 65-year-old couple retiring this year, lifetime health care costs are projected to total $661,812 in today’s dollars. HealthView estimates that roughly 84 percent of lifetime Social Security benefits for such a couple will be needed to cover health care expenses alone.
What Medicare Actually Covers – and What It Doesn’t
As retirement approaches for many Americans nearing age 65, there is a common expectation that Medicare will serve as the primary source of coverage for their healthcare expenses. Fidelity’s research shows that the majority of pre-retirees underestimate what Medicare covers, a gap that can leave them exposed to high out-of-pocket costs.
Even with Medicare, out-of-pocket costs for premiums, prescriptions, and uncovered services can be significant. Standard Medicare does not cover dental, vision, or most hearing care. These are not minor expenses, especially for people in their 70s and 80s when these needs become more common and more urgent.
Home Modifications and Aging-in-Place Costs
Around 75 percent of seniors would stay in their current home for the rest of their lives if they could, according to a 2024 AARP survey. This practice, known as aging in place, brings its own set of costs. Doorways may need to be widened for wheelchair passage, a bedroom added to the main floor, or a bathroom renovated to accommodate the limited mobility that often comes with advanced age.
Simple home safety upgrades like installing grab bars, improving lighting, and using nonslip strips in wet areas can reduce fall risks. Each year, more than one in four adults age 65 and older take a fall, leading to about 3 million emergency room visits, according to the Centers for Disease Control and Prevention. Falls are both a health risk and a financial one, often triggering a cascade of unplanned expenses.
Insurance Premiums Nobody Budgeted For
While overall inflation has hovered between 2 and 3 percent in recent years, home insurance rates surged 12.7 percent in 2024 and rose 6 percent in 2025, according to a 2026 LendingTree analysis. Retirees living on fixed incomes feel these jumps acutely because there is rarely slack in the budget to absorb them.
Federal data shows motor vehicle insurance premiums rose 2.8 percent in 2025, after rising 11.3 percent in 2024 and 20.3 percent in 2023. Transportation costs in general are also frequently underbudgeted. U.S. households led by someone age 65 or older spent $9,538 on transportation costs in 2024, on average, according to the Bureau of Labor Statistics.
Taxes on Retirement Income: A Surprise for Many
Even Social Security retirement benefits are taxable in certain situations. About half of retiree households do owe taxes on a portion of their Social Security benefits, according to the Senior Citizens League.
If combined income exceeds $25,000 for individuals or $32,000 for couples, federal taxes can apply to up to 85 percent of Social Security payments. These tax thresholds have not been adjusted for inflation since 1984, pushing more middle-class retirees into the tax-paying bracket every year. Many retirees discover this only after filing their first return in retirement.
The Planning Gap Nobody Talks About Enough
Recent Fidelity research shows one in five Americans say they have never considered health care needs during retirement, a figure that rises to one in four among Gen X. Across all generations, 17 percent have taken no action at all when it comes to planning for health expenses in retirement.
While health savings accounts offered by Fidelity saw 43 percent growth in total assets and a 23 percent increase in accounts in 2024, just 23 percent of Americans are contributing to an HSA to prepare for healthcare costs in retirement, and only three in ten are investing their HSA assets. The tool exists. Most people just aren’t using it.
About 45 percent of retirees could run out of money in retirement, in part because of spending they didn’t anticipate. Healthcare is the dominant driver of that shortfall, but it is rarely treated with the same planning urgency as housing or travel.
Final Thoughts
The core problem isn’t that people don’t care about retirement planning. It’s that healthcare costs feel abstract until they’re immediate, and by the time they’re immediate, it’s often too late to adjust. The numbers from Fidelity, Milliman, and HealthView all point in the same direction: healthcare in retirement costs far more than most people believe, and that gap has been growing steadily for over two decades.
Closing the gap means planning earlier, saving more specifically for medical costs, understanding what Medicare does and does not cover, and honestly confronting the probability of needing long-term care. The retirees who fare best aren’t the ones who hoped for the best. They’re the ones who budgeted for the reality.
AI Disclaimer: This article was created with the assistance of AI tools and reviewed by a human editor.