Decades of Medicare payroll deductions create an expectation of full coverage in retirement. That assumption could prove more expensive than any other budget mistake made after 65.

A 65-year-old retiring in 2026 can expect to spend $185,500 on healthcare throughout retirement, Fidelity Investments estimated in its 25th annual Retiree Health Care Cost Estimate. 

The figure assumes enrollment in Original Medicare (Parts A and B) and Part D, and covers premiums, deductibles, coinsurance and out-of-pocket prescription drug costs. It rose from the prior year’s estimate of $172,500. 

The 2026 increase is the largest jump in recent years and reflects rising medical prices, growing utilization, and higher costs tied to chronic conditions.

Fidelity’s research found that 54% of pre-retirees believe Medicare will cover all of their healthcare costs.

The Medicare program falls short of that, and for a married couple both retiring at 65, the combined lifetime cost would reach roughly $371,000, based on Fidelity’s estimate.

Fidelity’s healthcare cost projection just posted its steepest annual jump

Fidelity’s retirement healthcare estimate climbed by nearly 5% in 2024, about 4% in 2025, and 7.5% in 2026, the firm reported in a press release.

Medical inflation outpaced general consumer price increases throughout that period, driving each annual revision higher.

Fidelity’s cost breakdown shows Medicare cost-sharing provisions such as copayments, coinsurance and deductibles account for about 48% of the lifetime total.

Premiums for Medicare Parts B and D represent 45%, while out-of-pocket costs for branded, generic and specialty drugs not covered by Part D make up the remaining 7%, Fidelity’s press release detailed.

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Long-term care, over-the-counter medications, and most dental services fall entirely outside the estimate.

Fidelity’s methodology excludes those categories from its annual calculation, which means the actual lifetime cost could climb much higher for retirees who develop chronic conditions.

Retirees and near-retirees who based their savings targets on an earlier version of this projection may already face a shortfall.

A couple using the 2024 estimate faces a shortfall of roughly $41,000 relative to the current figure, a deficit that grows each year the acceleration continues, the firm showed.

Medicare Part B premiums are absorbing retirees’ annual raises

The Social Security Administration (SSA) set the 2026 cost-of-living adjustment (COLA) at 2.8%, adding roughly $56 per month for the average retiree. 

The standard Part B monthly premium jumped to $202.90 for 2026, a 9.7% increase from $185, the Centers for Medicare and Medicaid Services (CMS) confirmed in a Federal Register notice.

That $17.90 premium hike absorbs nearly a third of the monthly raise before any other medical expenses arrive.

Steve Feinschreiber, senior vice president of the Financial Solutions Group at Fidelity Investments, has cautioned in a Fidelity analysis that the mismatch will keep widening as retirees on fixed incomes lose ground each year premium hikes exceed their benefit adjustment.

<strong>Health care is creating a ‘retirement cost gap’ for many pre-retirees … Many people assume Medicare will cover all your health care costs in retirement, but it doesn’t, so you should carefully weigh all options</strong>

Higher-income enrollees face steeper costs through the Income-Related Monthly Adjustment Amount (IRMAA), which activates at $109,000 for single filers.

The Part B premium can reach $689.90 monthly for individuals reporting modified adjusted gross income above $500,000, according to the Federal Register notice.

IRMAA also stacks on top of taxes and RMDs on large retirement accounts, adding another layer of cost that standard projections often miss, Fidelity warned.

Health savings accounts offer a hedge most savers miss

The Health Savings Account (HSA) carries tax advantages no other retirement vehicle can match, Fidelity pointed out. Contributions go in tax-deductible, the balance grows tax-free, and withdrawals for qualified medical expenses owe no federal tax at all. 

After age 65, non-medical withdrawals lose the penalty and are taxed as ordinary income, making the account function like a traditional Individual Retirement Account (IRA).

For 2026, the Internal Revenue Service (IRS) set HSA contribution limits at $4,400 for individuals and $8,750 for families. Workers aged 55 and older can add a $1,000 catch-up contribution on top of those limits.

New eligibility rules also extend HSA access to Bronze and Catastrophic marketplace plan holders, the IRS confirmed.

About 40% of Americans with HSAs have not yet invested the funds sitting in their accounts, leaving potential tax-free growth on the table that could offset rising retirement healthcare costs, Fidelity reported. 

Workers approaching retirement should treat the HSA as a long-term investment account rather than a spending tool for current medical bills, Feinschreiber recommended.

Starting contributions even a few years before Medicare eligibility begins gives the balance more time to compound tax-free, Fidelity advised.

What Fidelity’s $185,500 estimate means for your planning

Fidelity recalculates this projection annually, and each new figure resets the savings target for anyone approaching retirement.

Separating healthcare from general living costs in a retirement budget helps track whether medical reserves keep pace with the inflation rate behind this estimate, Feinschreiber recommended.

Medicare’s Annual Enrollment Period runs from October 15 through December 7, giving Medicare Advantage and Part D enrollees an annual window to compare coverage before the next round of premium changes takes effect, Fidelity advised.

A plan that worked last year may no longer offer the best value after the latest adjustments, the firm cautioned.

Retirees already enrolled in Medicare should treat each annual premium and deductible change as a prompt to reassess their spending against Fidelity’s updated figure, the firm recommended.

The projection is designed to inform every stage of retirement, not only the accumulation years before enrollment begins, Feinschreiber explained.

Related: Fidelity flags overlooked traps in old 401(k) decisions