Leaving the workforce burdens retirees with substantial six-figure health care expenses
In a recent development, Chandler Riggs, Vice President of Financial Consultancy at Fidelity Investments, has called Fidelity's estimate on healthcare costs for retirees an "important wake-up call for all generations." The estimate reveals a concerning trend in the United States, with healthcare costs for retirees on the rise.
According to the report, a 65-year-old retiring in 2025 can expect to pay an average of $172,500 for healthcare and medical expenses throughout retirement. This represents more than a 4% increase over 2024 and a continuation of the upward trajectory of rising costs since 2002 when the estimate was $80,000.
The increase in healthcare costs has significant implications for retirement planning. Many Americans underestimate the scale of healthcare expenses they will face in retirement. Surveys indicate that 1-in-5 Americans have never considered healthcare costs in retirement, and across generations, 17% have taken no action on planning for these expenses.
The growing pessimism about the future of Medicare, with projections that Medicare benefits could be cut by about 11% by 2033 due to funding shortfalls, further compounds the issue. Rising Medicare premiums and additional charges like IRMAA for higher-income retirees increase the burden, making it vital for retirees to include these escalating costs in their financial plans.
However, there is a silver lining. Health Savings Accounts (HSAs) have a triple-tax advantage and can be used for qualified medical expenses. Contributions to HSAs are tax-deductible, and any potential growth in money invested in an HSA is tax-free. Saving early and leveraging accounts where savings can be invested are powerful tools to build a "healthcare nest egg."
Despite the increasing adoption of HSAs, their utilization remains underutilized as a planning tool, highlighting the need for enhanced education and proactive financial strategies. People who have health coverage through their employer may not consider how they'll cover medical expenses in retirement.
In summary, the trend of rising healthcare and Medicare costs significantly impacts retirement planning by increasing the amount retirees must save and plan for to cover medical expenses. Ignoring these trends can jeopardize financial security in retirement, emphasizing the importance of early and comprehensive health cost planning.
Matthew Gregory, Planning Director for private wealth management firm The Bahnsen Group, states that people grow accustomed to a hands-off approach during their working years since a meaningful piece of the cost can come directly out of their paycheck. However, in retirement, this approach can lead to financial insecurity. It's crucial to take steps to better one's financial position, regardless of retirement stage.
[1] Fidelity's 2025 Retiree Health Care Cost Estimate [2] The Medicare Trustees Report, 2021 [3] Gallup Poll: Americans' Confidence in Social Security Drops to 36% [4] Kaiser Family Foundation: Medicare Premiums to Increase in 2026
- To tackle the projected healthcare costs for retirees, focusing on investments such as Health Savings Accounts (HSAs) could prove beneficial, given their triple-tax advantage for qualified medical expenses.
- Chandler Riggs, from Fidelity Investments, warns that the continually rising healthcare costs in the United States, with the 2025 estimate at $172,500 for a 65-year-old retiree, threatens financial security in retirement.
- As inflations in healthcare and Medicare costs impact the economy and personal-finance, it's essential to proactively seek education and adopt effective financial strategies, as suggested by Matthew Gregory of The Bahnsen Group.
- In the 2021 Medicare Trustees Report, Medicare benefits face potential cuts of 11% by 2033 due to funding shortfalls, further emphasizing the importance of planning for healthcare expenses in retirement.
- Fidelity's estimate of healthcare costs for retirees, serving as an "important wake-up call," signals a need for individuals to include escalating medical costs in their long-term financial plans and investments.
- Neglecting the projected increase in healthcare and Medicare costs can undermine financial security in retirement, reinforcing the value of early and comprehensive planning in personal finance and health-and-wellness.
- Contrary to the passive financial approach often taken during working years, it's imperative for retirees to adopt active strategies for wealth-building and mental-health, as highlighted by The Bahnsen Group's planning director, Matthew Gregory.
