Fidelity Investments now estimates that a 65-year-old retiring today needs $185,500 in after-tax savings just to cover out-of-pocket healthcare costs through retirement. That figure, released in Fidelity’s 25th annual retiree healthcare cost estimate, represents a 7.5% jump from last year’s $172,500 projection. It does not include long-term care, dental, or over-the-counter medications.

Healthcare is the single largest unplanned liability in most retirements, and the cost is compounding faster than most portfolios can keep pace with. For capital-preservation-minded investors, this is a purchasing-power story, not a health story.

The $13,000 year-over-year increase lands at a moment when retirees already feel squeezed. A recent KFF poll found that half of all Medicare beneficiaries ages 65 and older expect their healthcare costs to rise in the coming year. And the Employee Benefit Research Institute reported this spring that nearly four in ten retirees said healthcare expenses were higher than they expected when they first retired.

That gap between expectation and reality is where retirement plans break down.

What the $185,500 Covers and What It Doesn’t

Fidelity’s estimate assumes enrollment in traditional Medicare Parts A and B plus Part D prescription drug coverage. It includes premiums, copayments, and other out-of-pocket costs for medical care and prescriptions. Roughly 15% of the average retiree’s annual expenses will be health-related, according to the firm.

But the exclusions matter as much as the inclusions. Long-term care is not part of the number. Neither are most dental services or over-the-counter medications. For anyone who ends up needing assisted living or memory care, the real figure could dwarf Fidelity’s headline estimate.

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Data from the National Investment Center for Seniors Housing & Care puts the average annual cost of an assisted-living apartment at $82,899 in 2025. Units for dementia patients averaged $103,412. Those costs rise as residents age and require more intensive care. A single three-year stay in a memory-care facility could consume the entire $185,500 Fidelity projects for a full retirement’s worth of standard medical expenses.

As we explored in our coverage of elder care costs quietly draining boomer wealth, these late-life expenses often arrive precisely when portfolios are most vulnerable to drawdown risk and least able to recover.

Medicare Premiums Keep Climbing

The government side of the ledger is not offering relief. The monthly Part B premium rose $17.90 from the prior year to $202.90. The annual Part B deductible climbed $26 to $283. These are modest-sounding increases in isolation, but they compound over decades of retirement and they stack on top of copays, supplemental insurance, and prescription costs that Fidelity’s model does capture.

Shams Talib, head of Fidelity Workplace Consulting, tried to frame the number constructively:

“Financial planning for retirement is about more than reaching a savings target, especially as retirement itself continues to evolve. Whether Americans fully stop working, phase into their retirement, or pursue new ways to stay engaged, health care consistently remains one of the largest expenses they will face. Providing a benchmark to consider can help them plan with purpose and more confidence.”

That framing is reasonable as far as it goes. But the 7.5% annual increase in the estimate itself tells a different story. If healthcare costs are compounding at that rate while Social Security cost-of-living adjustments lag behind actual medical inflation, retirees face a structural shortfall that widens every year they live.

The mismatch between official inflation adjustments and real-world healthcare costs is a pattern we have tracked in our analysis of how Social Security’s COLA estimates mask a deeper problem for retirees.

The Purchasing-Power Problem

For readers of this publication, the healthcare cost story is fundamentally a monetary story. A retiree who set aside $185,500 in nominal dollars today may find that sum buys considerably less medical care fifteen or twenty years from now. The question is not just whether you have the number. The question is whether the number holds its value.

Craig Copeland, director of wealth benefits research at the Employee Benefit Research Institute, put the surprise factor plainly:

“In our report published this spring, the expense that stood out for retirees was healthcare. In fact, nearly 4 in 10 retirees said that these expenses were higher than they expected when they first retired.”

That four-in-ten figure is striking. It means a large share of retirees planned, saved, and still got caught off guard. The implication is that the planning tools themselves may be underestimating the trajectory. If Fidelity’s estimate has jumped 7.5% in a single year, the 25-year trend line suggests the real lifetime cost for someone retiring a decade from now could be substantially higher.

This is where the capital-preservation lens matters most. Nominal savings sitting in low-yield vehicles lose ground to medical inflation every year. Retirees who assumed a static cost environment find themselves drawing down principal faster than planned. The math is unforgiving: a portfolio that needs to fund 15% of annual expenses for healthcare while also covering housing, food, taxes, and discretionary spending faces a sequencing risk that most retirement calculators handle poorly.

That tension between savings levels and actual retirement costs is something we examined in our look at why most retirees with savings below $1 million say they’re fine, even when the math suggests otherwise.

What Fidelity’s Number Leaves Out

The biggest gap in the $185,500 estimate is long-term care. Fidelity excludes it, and for good reason: the variance is enormous. Some retirees never need it. Others spend years in assisted living or memory care at costs that can exceed $100,000 annually.

The National Investment Center’s 2025 data makes the scale of the risk concrete:

  • Average assisted-living apartment: $82,899 per year
  • Average dementia-care unit: $103,412 per year
  • Costs increase as residents age and need more intensive support

A retiree who needs three years of memory care could face a bill north of $300,000 on top of the $185,500 Fidelity projects for standard medical expenses. That is nearly half a million dollars in healthcare costs alone, before housing, food, or anything else.

Geographic variation adds another layer of uncertainty. Fidelity’s estimate does not appear to account for regional differences in healthcare pricing. A retiree in a high-cost metro area may face substantially steeper out-of-pocket expenses than someone in a lower-cost state. We have covered those disparities in our analysis of retirement costs by state and the savings crisis most Americans aren’t ready for.

The Compounding Trap for Future Retirees

Fidelity’s estimate applies to someone retiring at 65 today. For workers in their fifties or early sixties, the trajectory is worse. If the estimate continues to climb at anything close to 7.5% annually, a 55-year-old today could face a figure well above $250,000 by the time they reach retirement age. That is a rough extrapolation, not a forecast, but the direction is clear.

The underlying drivers are structural. Medical costs in the United States have outpaced general inflation for decades. An aging population increases demand for healthcare services. Medicare premiums and deductibles are adjusted upward regularly. Prescription drug costs remain volatile despite periodic legislative interventions. None of these forces are likely to reverse.

For Gen X workers approaching retirement, this compounds a savings gap that was already wide. The challenge of inflation eroding retirement savings over time is one we explored in our coverage of the Gen X retirement crisis and the real cost of inflation on savings.

What This Means for Capital Preservation

The Fidelity report is not a gold story on its face. But it is a story about the slow erosion of purchasing power, the inadequacy of nominal savings targets, and the structural incentive for policymakers to keep inflation running warm enough to manage government debt burdens while retirees absorb the cost.

Healthcare inflation is one of the most persistent and least hedgeable risks in retirement. It does not respond to portfolio rebalancing. It does not care about asset allocation models. It simply compounds, year after year, against a fixed or slowly growing pool of savings.

For investors who think in terms of real returns rather than nominal ones, the message is clear. A retirement plan denominated entirely in dollars, bonds, and conventional equities carries an embedded bet that the currency will hold its purchasing power against a cost category that has historically outrun it. That bet has not paid off well over the past quarter century.

Hard assets do not solve the healthcare cost problem directly. But they address the underlying monetary risk that makes the problem worse over time. When the cost of staying alive in retirement rises 7.5% in a single year, the question is not just how much you have saved, but what you have saved it in.

Fidelity’s $185,500 is a planning number. The real number, for most retirees, will be higher. The only question is how much purchasing power they will have left when the bills arrive.