The $172,500 healthcare bill most Americans don’t see coming

1. The number Americans systematically underestimate

Fidelity Investments has published an annual estimate of retiree healthcare costs for 24 consecutive years. The 2002 figure was $80,000. The 2025 figure — for a single 65-year-old retiring in 2025 — is $172,500. That’s a 115% increase in 23 years, against general inflation of roughly 65% over the same period. Healthcare costs have grown nearly twice as fast as the broader economy, and the trend shows no sign of reversal.

For couples, the lifetime number is $345,000 in after-tax dollars. For perspective, that’s more than the entire net worth of the median American household aged 65-74, which the Federal Reserve pegs at $409,900. Two-thirds of an average pre-retirement net worth, dedicated solely to healthcare — and that figure explicitly excludes long-term care, the single largest healthcare expense most retirees eventually face.

The most striking finding from Fidelity’s research isn’t the cost itself. It’s the gap between reality and what Americans expect. According to Fidelity’s separate retirement readiness research:

• The average American expects to spend about $75,000 on healthcare during their entire retirement
• The actual Fidelity estimate is $172,500 for a single retiree — 2.3x higher
• 17% of Americans have taken NO action to plan for retirement healthcare costs
• 1 in 5 (20%) admit they have never considered healthcare costs in retirement
• 1 in 4 Gen X workers (25%) have never considered the question — despite being closest to retirement age

The underestimation isn’t a minor planning gap. It’s the difference between a retirement that works and one that runs into a wall in the late 70s or early 80s, when healthcare needs accelerate and Medicare’s gaps become unavoidable. This article walks through what the $172,500 actually covers, what it doesn’t, what Medicare won’t pay for in 2026, and how to plan around the real numbers.

2. What the $172,500 actually covers — and what it doesn’t

The $172,500 figure isn’t a guess. It’s based on Fidelity’s actuarial modeling, which assumes a specific set of conditions. Understanding what’s IN and OUT of the calculation is critical to interpreting it correctly.

What’s included in the $172,500:

• Medicare Part B premiums (and IRMAA surcharges if applicable)
• Medicare Part D prescription drug coverage (premiums and out-of-pocket costs)
• Part A and Part B cost-sharing (deductibles, coinsurance, copayments)
• Outpatient medical care, doctor visits, lab work
• Inpatient hospital care (subject to deductibles and coinsurance)
• Prescription medications (under Part D)

What’s NOT included in the $172,500:

• Long-term care (nursing home, assisted living, in-home care) — the single biggest exclusion
• Routine dental care (cleanings, fillings, crowns, dentures)
• Routine vision care (eye exams, glasses, contacts — except after cataract surgery)
• Hearing aids ($2,000-$12,000 per pair, typically lasting 5-7 years)
• Cosmetic procedures
• Most overseas healthcare
• Adult diapers and incontinence supplies

The exclusions matter enormously. A retiree with normal Medicare coverage, no Medigap policy, and routine needs in their 70s and 80s will likely face:

The sum of these “uncovered” expenses across a typical 25-year retirement can easily exceed $50,000 — and that’s BEFORE any long-term care, which has its own catastrophic cost profile discussed in section 5.

The honest interpretation of the Fidelity $172,500 number: it’s the baseline cost of Medicare-covered services for a healthy retiree. The actual lifetime cost for most retirees, including the Medicare-uncovered gaps and at least some long-term care, is meaningfully higher — typically $200,000-$300,000 per single retiree and $400,000-$600,000 per couple.

3. The 2026 Medicare costs that hit every retiree

Medicare is the foundation of retiree healthcare for most Americans, but “Medicare” is a complicated system of premiums, deductibles, and cost-sharing that retirees encounter as a moving target. Here are the 2026 numbers that affect every Medicare beneficiary:

The Part B jump is the headline. The $17.90 monthly increase to $202.90 is the largest single dollar jump since 2022. For a Medicare beneficiary, that’s $214.80 more per year just for Part B coverage — and $429.60 for a married couple where both spouses are on Medicare. For retirees on fixed income, this kind of premium increase is a real budget impact, not a rounding error.

IRMAA hits higher-income retirees. For 2026, the Income-Related Monthly Adjustment Amount (IRMAA) starts at $109,000 single / $218,000 MFJ in modified adjusted gross income. Above those thresholds, Part B and Part D premiums increase substantially — from several hundred to several thousand dollars more per year depending on the income tier. The two-year lookback means 2026 IRMAA is based on your 2024 income — catching retirees who had a high-income year right before retirement. (For the full IRMAA bracket breakdown, see the hidden Medicare surcharge guide.)

The Part D out-of-pocket cap is relatively new. The Inflation Reduction Act eliminated the Medicare Part D coverage gap (the “donut hole”) and capped annual out-of-pocket prescription drug costs at $2,000 in 2025. For 2026, that cap rose modestly to $2,100. For retirees with high-cost prescription needs, this is a meaningful improvement — but the cap still represents real out-of-pocket spending, and the $2,100 doesn’t include monthly Part D premiums.

The combined 2026 baseline Medicare cost for a retiree without high prescription spending: roughly $3,000-$4,000 per year per person just in premiums and standard cost-sharing, before any actual healthcare consumption. For a couple, that’s $6,000-$8,000 annually as a baseline — money that needs to come from retirement income before any other healthcare spending begins.

The $172,500 Fidelity estimate is the baseline cost of Medicare-covered care for a healthy retiree. The actual lifetime cost for most retirees, including dental, vision, hearing, and at least some long-term care, runs $200,000-$300,000 per person — and $400,000-$600,000 per couple. The number Americans expect to spend (about $75,000) is less than half the truth.

4. The seven things Medicare doesn’t cover

Beyond the premiums and cost-sharing, the larger surprise for most new Medicare beneficiaries is the list of services Medicare simply doesn’t pay for. The exclusions trace back to Medicare’s original 1965 design — when the program was structured to cover acute medical care, not the routine maintenance services that an aging population actually needs in retirement.

1. Routine dental care. Medicare pays $0 for cleanings, fillings, crowns, dentures, root canals, or extractions. Dental work is covered only when it’s part of a covered medical procedure (like dental clearance before heart surgery) or for jaw fractures. A retiree needing a single crown faces $1,500 entirely out of pocket; full dentures can run $5,000+. The lifetime impact, particularly for retirees who delay dental care due to cost, can include “extract-only” decisions that compromise nutrition and quality of life.

2. Routine vision care. No coverage for routine eye exams, glasses, or contact lenses. Medicare does cover medical eye conditions — cataract surgery, glaucoma testing, diabetic retinopathy treatment — but the routine exams and corrective eyewear that most retirees need every 1-2 years are entirely out of pocket. After cataract surgery, Medicare covers one pair of standard glasses or contacts — that’s the only exception.

3. Hearing aids and hearing exams. This is the most surprising exclusion for many. Medicare classifies hearing aids as “elective” despite well-documented links between untreated hearing loss and dementia, depression, and social isolation. In 2026, prescription-grade hearing aids cost $2,000-$12,000 per pair, typically lasting 5-7 years. Over a 25-year retirement, hearing aid costs alone can exceed $30,000 — entirely out of pocket under Original Medicare.

4. Long-term care. Medicare covers up to 100 days of skilled nursing care immediately following a qualifying 3+ day hospital stay. For custodial care — help with bathing, dressing, eating, mobility — Medicare pays $0. Nursing homes ($100,000+ per year average in 2026) and assisted living ($74,400 national median) are entirely the retiree’s responsibility unless they qualify for Medicaid (which requires near-complete asset depletion) or have long-term care insurance.

5. Personal home care. If you need help with bathing, dressing, getting out of bed, or general daily living, Medicare doesn’t cover these services unless you’re also receiving skilled nursing care and homebound. The gap is significant for retirees aging in place who need part-time assistance but don’t qualify for skilled care.

6. Overseas healthcare. Medicare generally doesn’t cover healthcare outside the United States, except in very limited circumstances (emergency on a cruise ship within 6 hours of a US port). Retirees who spend significant time abroad — increasingly common in modern retirement — need to budget for separate travel medical insurance or accept significant out-of-pocket exposure.

7. Alternative and complementary medicine. Acupuncture, chiropractic care (with limited exceptions), naturopathic medicine, and most alternative therapies aren’t covered. Retirees who incorporate these into their healthcare routine pay entirely out of pocket.

5. The long-term care problem that doubles the headline

The single biggest expense Medicare doesn’t cover — and the one most likely to overwhelm a retirement plan — is long-term care. Of Americans turning 65 today, 69% will need some form of long-term care during their lifetime, according to research from the US Department of Health and Human Services and Genworth. The expected length of care varies, but the typical duration is 2-3 years for women and 1-2 years for men.

2026 long-term care costs:

• Nursing home (private room): $129,575/year national median
• Nursing home (semi-private): ~$110,000/year national median
• Assisted living: $74,400/year national median
• In-home health aide (44 hrs/week): $75,500/year national median
• Adult day health care: $25,000/year national median

These costs vary dramatically by location. Major metropolitan areas in the Northeast and West Coast can run 50-100% above the national median. Rural areas in the South and Midwest can run 30-40% below.

The catastrophic risk profile. Long-term care has a “barbell” distribution of outcomes. Most retirees who need care will face modest costs (a few months in assisted living, in-home care for limited periods). A meaningful minority — typically 10-15% — will face catastrophic costs: 5+ years of nursing home care at $100,000+ per year, producing $500,000-$1,000,000+ in lifetime LTC expenses. The risk is real even if the typical outcome is manageable.

Path 1: Pay out of pocket. For retirees with substantial assets ($1 million+), self-funding is feasible. The math: $100,000-$130,000 per year, for an uncertain number of years, paid from portfolio drawdowns. The risk: a longer-than-average care duration can deplete even substantial portfolios.

Path 2: Long-term care insurance. Annual premiums in the $2,000-$5,000+ range, depending on age and coverage level. Coverage typically begins after an “elimination period” (30-90 days of self-funded care) and pays daily benefits up to a lifetime maximum. The traditional LTC insurance market has been troubled — many insurers exited the market in the 2010s — but newer hybrid life/LTC policies offer alternatives.

Path 3: Medicaid. For retirees who exhaust personal assets, Medicaid covers nursing home care after a 5-year “lookback” period during which asset transfers to family members are penalized. This is the de facto LTC insurance for most Americans without substantial assets — but it requires near-complete impoverishment to qualify, and Medicaid’s covered nursing homes are often lower-quality than private-pay alternatives.

The honest framing: most American retirees don’t have a real long-term care plan. They have an implicit plan (deplete savings, then Medicaid), but they haven’t worked through the math or chosen between insurance, self-funding, and Medicaid as deliberate strategies. The 69% who will need some form of care eventually face the consequences of that planning gap, often during the worst possible moment — declining health and limited capacity to make complex financial decisions.

6. The HSA strategy that funds retirement healthcare tax-free

The single most powerful tax-advantaged tool for retirement healthcare costs is the Health Savings Account (HSA). Most Americans who have access to one don’t use it strategically — and most Americans without access don’t know they’re missing the most tax-efficient retirement healthcare planning vehicle available.

The HSA triple tax benefit:

1. Contributions are tax-deductible (pre-tax via payroll or above-the-line deduction)
2. Investment growth is tax-free (just like a Roth IRA)
3. Qualified medical withdrawals are tax-free (lifetime)

No other retirement account offers all three benefits. 401(k)s and traditional IRAs get tax-deductible contributions but taxable withdrawals. Roth accounts get tax-free withdrawals but no upfront deduction. HSAs get both.

HSA eligibility requirements:

• Enrolled in a High-Deductible Health Plan (HDHP) — generally a plan with deductible of $1,650+ single / $3,300+ family in 2026
• Not enrolled in any other health coverage (no Medicare, no general-purpose FSA, no spouse’s regular health plan)
• Not a dependent on someone else’s tax return

2026 HSA contribution limits:

• Single coverage: $4,300
• Family coverage: $8,550
• Catch-up (age 55+): Additional $1,000

The retirement healthcare math. A worker who maxes HSA contributions from age 30 to 65 — 35 years at the family limit, growing at 7% annually — accumulates roughly $1,200,000-$1,300,000 by age 65, entirely available for tax-free medical expenses. Even a worker maxing only the single contribution limit for the same period accumulates several hundred thousand dollars. These numbers dwarf the $172,500 Fidelity estimate, meaning a fully-funded HSA can completely cover lifetime healthcare costs with substantial money left over.

HSAs and Medicare interact specifically. Once you enroll in Medicare, you can no longer contribute to an HSA. But you can continue using the accumulated balance for qualified medical expenses indefinitely — including Medicare premiums, Part D premiums, copays, deductibles, and any medical expense Medicare doesn’t cover (dental, vision, hearing aids, long-term care). The strategic move: maximize HSA contributions during your working years (especially the catch-up period at 55+), then deploy the accumulated balance throughout retirement for the costs Medicare won’t cover.

For federal employees specifically, HSA eligibility depends on whether you’re enrolled in an HDHP through FEHB. Several FEHB carriers offer HDHP options that include HSAs — and these are particularly powerful for younger and mid-career federal employees who want to build retirement healthcare reserves while benefiting from FEHB’s broader features.

7. The federal employee advantage — how FEHB changes the math

Federal employees and retirees have access to a healthcare benefit structure that’s genuinely different from what most American retirees face: the Federal Employees Health Benefits (FEHB) program. The implications for the $172,500 calculation are substantial.

FEHB continues in retirement at the same premium structure. This is the central feature that distinguishes federal retirees from most American retirees. A federal employee who retires and meets the “five-year rule” (continuous FEHB coverage for the five years immediately before retirement, or for the entire period of eligibility) continues to receive the same FEHB plans, at the same employee-contribution rates, with the agency continuing to pay its share of the premium. There’s no separate “retiree health insurance” with reduced coverage or higher costs — FEHB is FEHB, before and after retirement. (For the mechanics of that rule, see the FEHB 5-year rule.)

FEHB coordinates with Medicare in retirement. For federal retirees who enroll in both Medicare Part A and FEHB, Medicare typically becomes the primary payer (covering services first) and FEHB becomes the secondary payer (filling many gaps Medicare doesn’t cover). This coordination typically eliminates most of the Medicare cost-sharing — deductibles, coinsurance, the 20% Part B coinsurance — and provides prescription drug coverage through the FEHB plan rather than requiring separate Part D enrollment.

What FEHB covers that Medicare doesn’t:

• Prescription drugs — most FEHB plans include comprehensive drug coverage
• Routine dental care through coordinated FEHB-affiliated dental plans (FEDVIP)
• Routine vision care through FEDVIP vision plans
• Lower out-of-pocket costs for Medicare-covered services
• More provider flexibility than Medicare Advantage plans typically offer

The financial impact for federal retirees. A federal retiree with FEHB + Medicare coordination typically spends substantially less than the $172,500 Fidelity estimate because most Medicare cost-sharing is eliminated by FEHB secondary coverage, prescription drugs are covered without separate Part D enrollment, dental and vision can be added through FEDVIP at reasonable costs, and the total healthcare premium structure is more predictable.

Federal retirees still face the Medicare Part B premium ($202.90/month in 2026) plus the FEHB premium (varies by plan, typically $200-$400/month for the retiree’s share). But the total combined out-of-pocket exposure is much lower than the Fidelity baseline, and most uncovered Medicare expenses are eliminated. For the Medicare-vs-FEHB coordination decision in detail, see Medicare Open Season decisions for federal retirees.

The five-year rule is critical. Federal employees who let FEHB coverage lapse in the years before retirement — perhaps to save on premiums while still working — lose the right to continue FEHB into retirement. This single rule has produced significant retirement healthcare consequences for federal employees who didn’t understand its implications. For the full mechanics, see the federal retirement application process.

The bottom line for federal employees: the $172,500 Fidelity number doesn’t really apply to you. The actual federal retiree healthcare cost trajectory is typically much lower — though long-term care remains a substantial unfunded risk for federal retirees just as it is for everyone else.

8. Five questions retirees ask about healthcare costs in 2026