A 65-year-old retiring in 2025 can expect to spend an average of $172,500 for health care and medical expenses throughout retirement, according to Fidelity Investments annual Retiree Health Care Cost Estimate report. 

The report, which is the firm’s 24th, noted that this new average represents a more than 4.5% increase over last year’s estimate of $165,000 and that it “continues the general upward trajectory of projected health-related expenses” since Fidelity’s first estimate of $80,000 in 2002. 

The 2025 estimate was published at a time of lost confidence in retirement prospects among Americans that have not yet retired and a record-number, 4.18 million, will reach the traditional retirement age of 65. 

Alarmingly, separate Fidelity research found that 1 in 5, or 20%, of Americans admit to never having thought about their health care needs during retirement, a number that increases to 1 in 4, 25%, among people in Generation X. 

Further, across all generations, 17% said they have not taken any action at all to plan for health care expenses in retirement, according to the report.  

Shams Talib, head of Fidelity Workplace Consulting, said Americans continue to underestimate how much money they will need to cover health care costs in retirement but “with the right tools and guidance, pre-retirees and retirees alike can take greater control of their financial futures” if they begin the planning process as soon as possible.  

The Estimate and What It Leaves Out  

According to Fidelity’s report, the estimate assumes that retirees are enrolled in original Medicare (Parts A and B) and Medicare Part D, which cover premiums, co-payments and other out-of-pocket costs for medical care and prescription drugs. It does not factor in long-term care expenses. 

Fidelity encourages retirees (and people not yet retired) to start a health savings account to prepare for the costs that Medicare will not cover. One of the most beneficial features of an HSA is its triple-tax advantage, which means that contributions to the account are made pre-tax, withdrawal of funds for qualified expenses is tax-free and individuals can invest HSA funds and any investment growth is also tax-free.  

Fidelity’s research has consistently shown that HSA users feel better equipped to cover health care expenses in retirement, but that many people do not even realize the full potential of an HSA, according to head of Fidelity Health, Steve Betts. 

There is also an “HSA knowledge gap” for pre-retirees, according to Fidelity. Only 15% of people ages 55-64 have an HSA and of that group, more than half (52%) don’t know that it can be used as a retirement savings vehicle. 

The federal budget reconciliation law, passed this month, also makes it possible for more Americans to have an HSA. Under current law, a person must be enrolled in a high-deductible health plan to be eligible to contribute to an HSA. Starting in January 2026, Individual coverage bronze and catastrophic plans available as individual coverage through the Affordable Care Act marketplace will be considered HSA-compatible HDHPs, even if they do not meet the minimum deductible or maximum out-of-pocket limit that otherwise apply to HSA-compatible HDHPs, according to information about the law from Groom Law Group. While the law does not impact employer-sponsored HDHPs, plan sponsors can make HSA contributions for employees, even if the employee is not enrolled in an employer-sponsored HDHP, according to Groom. 

Reliance On Medicare 

Fidelity’s report emphasizes that for older Americans who are approaching Medicare eligibility, understanding the potential costs that could arise in retirement and how the federal insurance plan can and cannot help is crucial.  

Fidelity notes that while 37% of Americans plan to rely on Medicare to cover health costs in retirement, it’s estimate (which assumes enrollment in Medicare Part A, B and D) is evidence of how fast out-of-pocket expenses can add up.  

Things like Medicare premiums, over-the-counter medications, dental and vision care and long-term care are costs that retirees will have to cover, which makes planning for them before retirement that much more vital.