For many entering their retirement years, Medicare offers a plan forward. But the federal health insurance program might not cover as much as you think — and for some couples, not nearly enough to last their full retirement.
According to recent research from the Employee Benefit Research Institute (EBRI) (1), a couple with above-average prescription costs now needs roughly $469,000 to have a 90% chance of covering healthcare costs throughout their retirement.
While this figure represents the most extreme case in this study, other estimates in EBRI’s research highlight the steep cost of medical expenses. For instance, if a couple had a Medigap plan with average premiums, they’d still need $405,000 for a 90% chance of lasting through retirement. Even with $267,000 saved, they only have a 50% chance of making it.
And data from Fidelity’s 24th Retiree Healthcare Cost Estimate (2) shows similarly-high projections, with healthcare costs for a single 65-year-old retiring in 2025 reaching $172,500. That’s up 4% from 2024’s data and a far cry from $80,000 when Fidelity first ran this study in 2002.
Besides the rising cost for healthcare coverage, Fidelity’s authors were particularly concerned about the lack of preparedness to tackle this challenge. According to their report, one in five respondents said they never factored healthcare costs into their retirement budget.
According to head of Fidelity Workplace Consulting, Shams Talib, “Year after year, many Americans underestimate how much they’ll need to save to cover healthcare costs in retirement.”
Keep in mind that all of these figures don’t even include non-Medicare-covered costs like nursing home care.
The Federal Long Term Care Insurance Program suggests the annual average for a semi-private room in a nursing home is currently at $112,420 (3), but this varies depending on where you live and the type of care you need.
As EBRI noted at the start of its study, the decline in private-sector health benefits is a key driver of the recent rise in healthcare costs for retirees.
According to the institute’s data, only 4% of private-sector employers offer retirement health plans. That’s a drop from 11% in 1997 (1).
As these plans become increasingly scarce, the number of retirees planning to rely on Medicare has gone up to 37% per Fidelity’s estimates (2). However, misconceptions about what Medicare covers can also help explain these high average projections.
Besides long-term care, Medicare has coverage gaps such as no coverage for dental, vision and hearing care.
Plus, data from KFF (4) shows healthcare costs overall are rising faster than core inflation. Between 2022 and 2023, healthcare expenses rose 7.5% compared with a 4.6% rise between 2021 and 2022.
As if that wasn’t enough to worry about, the 2025 Medicare Trustees Report (5) suggests the plan won’t have enough money in its fund to fully cover hospital bills by 2033. Although that doesn’t mean Medicare disappears, the program would only have enough incoming money to pay about 89% of costs.
It’s understandable why these stats can trigger a lot of stress. However, early planning can help prepare you better for healthcare costs you might incur in the future.
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To begin, know that all of these estimates for healthcare costs are general, so they can’t account for the nuances of your particular case. You need to sit down and review both your financial and physical health to get a more accurate forecast.
Also, remember that healthcare spending in retirement isn’t just about how much you save; it’s about the coverage you choose. Medicare beneficiaries can lower or increase their potential expenses by enrolling in options like Medigap or Medicare Advantage.
Research from EBRI (1) suggests retirees enrolled in Medicare Advantage plans often have lower savings targets than those with Medigap coverage. Just keep in mind that Medicare Advantage may come with trade-offs like narrower provider networks. Taking the time to understand these differences before retirement will help you better project your costs and build a plan that balances coverage and affordability.
The major non-Medicare expense many Americans need to think about is long-term care. According to the Office of the Assistant Secretary for Planning and Evaluation (ASPE) (6), 70% of adults aged 65 and up will need long-term care before they die.
To help with these high expenses later in life, consider long-term care insurance (7) while you’re still healthy and premiums are lower. This type of coverage helps protect your retirement savings from getting drained if you need nursing home or assisted living care later.
Another way to build your savings for healthcare costs is to open a health savings account (HSA) through your employer, a bank, or a brokerage. With HSAs, you’ll enjoy multiple tax advantages, including tax-deductible contributions and tax-free withdrawals for qualified medical expenses.
Currently, you can contribute up to $4,300 (8) for self-only coverage or $8,550 for a family HSA plan. Try your best to get as close to these maximums to maximize tax savings. Plus, don’t forget there’s a $1,000 catch-up contribution if you’re over 55.
As a final tip: Living a healthy life will increase your odds of saving more money. There’s data that shows people who maintain a healthy body mass index (9), avoid smoking (10) and exercise regularly (11) typically pay less for healthcare.
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We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
Employee Benefit Research Institute (1); Fidelity Newsroom (2); Federal Long Term Care Insurance Program (3); KFF (4); Centers for Medicare & Medicaid Services (5); Office of the Assistant Secretary for Planning and Evaluation (6); Federal Long Term Care Insurance Program (7); Internal Revenue Service (8); JAMA Network Open (9); PubMed (10); PubMed Central (11)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
