Americans are planning for retirement with a healthcare cost estimate that falls roughly $100,000 short of reality. The average person believes they’ll spend about $75,000 on healthcare throughout retirement, when the actual figure—according to Fidelity Investments’ 2025 estimate—sits at $172,500 for a single person. For couples, the number climbs above $345,000. This $170,000 gap represents one of the most significant blind spots in American retirement planning, and it has real consequences for people who thought their savings would carry them through their final decades. Consider the case of someone retiring at 65 with what they thought was a comfortable nest egg of $500,000. If they underestimated healthcare costs by $100,000 or more, they’ve essentially lost a fifth of their purchasing power to an expense they didn’t properly budget for.
What made sense on paper at the retirement party becomes a crisis during the first major health event. The problem isn’t that healthcare in retirement is new information—it’s that the estimates most people use are dangerously outdated. This underestimation isn’t accidental. Nearly 67% of pre-retired investors are underestimating their expected healthcare expenses, and about 20% of Americans say they’ve never considered healthcare needs during retirement at all. Among Gen X, that figure rises to one in four. The gap between assumption and reality has grown wider each year, driven by rising medical costs and the fact that people are living longer in retirement than previous generations. Understanding where the $170,000 difference comes from is the first step toward closing it.
Table of Contents
- Why Retirement Healthcare Costs Nearly $175,000 More Than Most People Plan For
- The Underestimation Trap: Why Smart People Get This Wrong
- Medicare Coverage Gaps Are Larger Than Most People Realize
- Long-Term Care Insurance and the Middle-Class Squeeze
- Inflation, Lifespan, and Compounding Surprises
- Fixing Your Healthcare Cost Estimate: From Assumption to Reality
- The Future of Retirement Healthcare Costs
Why Retirement Healthcare Costs Nearly $175,000 More Than Most People Plan For
The $172,500 Fidelity estimate covers Original Medicare (Parts A and B) and prescription drug coverage (Part D) for a healthy 65-year-old, excluding long-term care. Breaking this down reveals why the number shocks most people. Consider that someone retiring at 65 might spend 25 to 30+ years in retirement. That’s 300-plus months of healthcare needs, from routine checkups to managing chronic conditions that accumulate with age. The estimate assumes a healthy person, which many aren’t. For women specifically, the Milliman Retiree Health Cost Index puts lifetime healthcare spending at $313,000—more than $140,000 higher than what most people estimate.
Men come in at $275,000. The reason women’s costs are higher isn’t just biological; it’s also that women tend to live longer than men, extending their healthcare needs into their 90s and beyond. Someone who retires at 65 and lives to 95 faces 30 years of medical expenses, medication costs, and routine care that most retirement calculators leave out entirely. The problem intensifies when you account for inflation. Someone spending $6,500 per year on routine healthcare at age 65—the Bureau of Labor Statistics’ actual figure—faces costs that could double or triple by their mid-80s, even without any major health events. When people estimate they’ll spend $2,700 per year on routine healthcare, they’re not just underestimating current costs; they’re completely missing the inflation adjustment that will compound throughout retirement.
The Underestimation Trap: Why Smart People Get This Wrong
Most people aren’t willfully ignoring healthcare costs. The underestimation happens because of how our brains work with large numbers and distant futures. When someone is healthy and hasn’t experienced major medical bills, the idea of spending $170,000 on healthcare feels abstract and unlikely. They anchor on recent experience—maybe they spent $5,000 last year on healthcare—and project that forward, not realizing that healthcare costs accelerate rapidly after 65. There’s also a coverage misconception at work. Many people believe Medicare covers “most” healthcare costs in retirement, which is a dangerous half-truth. Medicare is a floor, not a ceiling. It doesn’t cover dental work, vision care, or hearing aids.
It doesn’t cover long-term care. It doesn’t cover all prescription drugs, and there’s an out-of-pocket maximum that many don’t know about. According to research from Jackson Financial, many retirees are surprised to learn that Medicare’s out-of-pocket costs can run thousands of dollars annually, even before considering supplemental insurance premiums. Only 16% of Americans report feeling “very knowledgeable” about what healthcare costs in retirement, according to the National Council on Aging. Yet 80% report being concerned about healthcare costs—meaning most people sense there’s a problem without understanding what it actually is. This knowledge gap is the real danger. Without knowing what you should plan for, you can’t accurately set aside funds. Some people respond by overestimating and wasting resources; more often, they underestimate and face a financial crisis in their 70s or 80s.
Medicare Coverage Gaps Are Larger Than Most People Realize
Medicare Part A covers hospital care, and Part B covers doctor visits and outpatient services—but there are deductibles, copayments, and coinsurance. In 2025, Part B comes with a $240 annual deductible and a 20% coinsurance for most services. Part D, which covers prescription drugs, has its own complicated structure with a coverage gap (the “donut hole”) where you pay full price for medications between certain spending thresholds. For someone taking multiple medications for chronic conditions, this gap can cost thousands of dollars in a single year. Long-term care—nursing homes, assisted living, or in-home care—is almost entirely on you. Medicare covers only very limited skilled nursing care, and only for a defined period. A study by the National Council on Aging found that the average cost of assisted living in the United States is over $50,000 per year, and a private nursing home room can exceed $100,000 annually.
Someone who needs five years of this care is looking at costs that dwarf their entire retirement healthcare estimate. Many people plan for $172,500 without realizing that this doesn’t include the very scenario most likely to deplete their savings: needing extended care in their 80s or 90s. Dental, vision, and hearing care are additional out-of-pocket expenses. A single crown can cost $1,000 to $3,000. new hearing aids run $2,000 to $6,000 per pair. Vision correction for presbyopia might require multiple pairs of glasses or bifocals. These items are purchased repeatedly throughout retirement. Someone who needs new hearing aids at 75, 80, and 85, plus ongoing dental work and vision care, adds tens of thousands of dollars to their actual costs—money they likely didn’t budget for because these expenses aren’t part of the Medicare discussion.
Long-Term Care Insurance and the Middle-Class Squeeze
Long-term care is where most retirement healthcare plans break. It’s also where the biggest surprises occur. Many people think they’ll “never need it,” but the reality is sobering: nearly 70% of people over 65 will need some form of long-term care before they die. This might be six months of in-home care, a few years in assisted living, or extended time in a nursing home. The cost structure is brutal: if you’re not poor enough for Medicaid and not rich enough to self-insure, you’re in the worst position. Purchasing long-term care insurance in your 50s or early 60s is one path, though premiums have become expensive and less attractive as insurers have faced claims higher than expected. A traditional long-term care policy might cost $150 to $300 monthly at age 55, more if you wait until 65.
Some people buy hybrid policies that blend life insurance with long-term care benefits. Others simply skip insurance and plan to pay out-of-pocket, which works only if they have substantial assets or are willing to quickly deplete their retirement savings and shift to Medicaid. The tradeoff is uncomfortable. Buy insurance and reduce your flexibility and spending power now. Skip it and hope you either don’t need long-term care or have enough savings to cover it. Most middle-class retirees choose neither path consciously; they simply avoid the decision, then face a crisis when one spouse needs care. At that point, they’re liquidating retirement accounts, selling the family home, or both. The $170,000 underestimation of basic healthcare costs doesn’t even address long-term care, making the true gap far larger for most households.
Inflation, Lifespan, and Compounding Surprises
Healthcare costs inflate faster than general inflation. Over the past few decades, medical costs have consistently outpaced overall inflation by 1% to 2% annually. Someone who spends $6,500 on healthcare at age 65 might spend $15,000 to $20,000 by age 85 if healthcare inflation continues at its historical rate. The $172,500 estimate assumes a specific inflation trajectory, but if healthcare costs accelerate—which many economists expect given aging demographics—actual costs could be significantly higher. Lifespan assumptions also matter enormously. The Fidelity estimate assumes a reasonable life expectancy, but it doesn’t account for people living into their 90s, which is increasingly common. Someone who lives from 65 to 95 faces 30 years of healthcare expenses, not 20 or 25. That’s 50% more years of medication costs, doctor visits, and routine care.
Adding even one extra decade to a retirement can add $40,000 to $60,000 in healthcare costs, depending on spending patterns. The uncertainty here is real: you don’t know how long you’ll live, so you’re planning for a cost you can’t fully predict. There’s also the complication of spousal healthcare costs. When couples retire together, the healthcare planning needs to account for both people. A couple might face combined costs above $345,000, but if one spouse dies before the other, the survivor continues incurring healthcare costs alone. The second spouse might face another decade or more of expenses. Planning for a couple’s healthcare often requires accounting for a “long tail” scenario where one person lives into advanced old age. People rarely do this, leading to a third layer of underestimation.
Fixing Your Healthcare Cost Estimate: From Assumption to Reality
The first step is acknowledging that $75,000 is wrong. Use the Fidelity or Milliman estimates as a baseline: $172,500 for a single person, $275,000 to $313,000 depending on gender, and $345,000+ for a couple. These are reasonable floor estimates and they only cover Medicare-eligible healthcare, not long-term care. Add 20% to 30% to account for inflation if you’re retiring more than a decade away. Next, consider your health status and family history. If you have chronic conditions that require ongoing medication, your costs will likely exceed the average. If multiple family members lived into their 90s, plan for a longer retirement and higher cumulative costs.
Some people benefit from working with a financial advisor who can run Monte Carlo simulations to stress-test their healthcare funding against different scenarios. This isn’t necessary, but it beats relying on guesswork. Finally, explore healthcare funding options beyond pure savings. A Health Savings Account (HSA) offers triple tax advantages and can be an excellent vehicle for retirement healthcare funding if you have access to one. Some people reduce their healthcare risk by maintaining employment or part-time work into their early 70s, which keeps them on an employer health plan longer. Others maximize Social Security by delaying it, since higher lifetime Social Security benefits can help fund healthcare costs. The specific strategy depends on your situation, but the key is to make a conscious choice rather than defaulting to an underestimate.
The Future of Retirement Healthcare Costs
Healthcare cost inflation shows no signs of slowing. Aging demographics mean more older adults requiring more healthcare, which drives up costs for everyone. Pharmaceutical costs continue rising faster than inflation, and new treatments—while beneficial—often come with substantial price tags. If the historical trend continues, someone retiring 10 or 15 years from now might face healthcare costs 30% to 40% higher than today’s estimates. Planning for $172,500 today doesn’t prepare you for costs that could reach $220,000 to $240,000 in future dollars.
Policy changes could also shift the burden. Medicare faces long-term funding questions, and future adjustments to coverage or cost-sharing could increase out-of-pocket costs for retirees. While no one knows what changes Congress might make, it’s prudent to assume that relying on Medicare to cover more in the future is not a safe bet. Building your healthcare plan on the assumption that current Medicare benefits will expand or costs will decrease sets you up for disappointment. The more conservative approach—assuming costs might rise and coverage might shrink—is more prudent for retirement planning.