Retirees Face Soaring Health Care Costs — and They Aren’t Ready

The projected amount that retirees expect to spend on health care continues to grow — news that calls for more attention and a better readiness plan, including from employers.

A 65-year-old who retires in 2025 can expect to spend an average of $172,500 on health care and medical expenses throughout retirement, according to a new annual report on retiree health care costs from Fidelity. That’s a 4% increase over last year’s expectation of $165,000 and continues the upward trajectory of projected health-related expenses occurring since Fidelity’s initial $80,000 estimate in 2002.

The estimate assumes enrollment in Original Medicare (Parts A and B) and Medicare Part D, which includes premiums, co-payments, and other out-of-pocket costs for medical care and prescription drugs. It does not include long-term care expenses, which are often extremely pricey and may push estimates much higher. In fact, roughly 4 in 10 retirees reported that health care expenses are higher than they expected, according to a survey by the Employee Benefit Research Institute and Greenwald Research. 

“Health care is often one of the most significant and unpredictable costs in retirement, and failing to factor in its potential impact can throw a wrench into your retirement income strategy incredibly quickly,” said Chandler Riggs, certified financial planner, vice president, and financial consultant at Fidelity in Tulsa, Okla. 

A shocking 1 in 5 U.S. workers said they’ve never considered health care needs during retirement, according to Fidelity research. Across all generations, 17% said they’ve taken no action at all when it comes to planning for health expenses in retirement.

“Even as health care costs continue to rise, many Americans aren’t aware how much of an impact these expenses can have on their retirement income,” Riggs said. “This can partially be attributed to the fact that health care coverage is out of sight, out of mind for a large portion of the workforce: Many Americans are enrolled in their employer’s health plan, and the cost of coverage is often an automatic deduction from their paycheck. When they need the coverage, it’s there — but that isn’t always the case in retirement.”

The data indicates that employees need to do a better job in “planning early and saving consistently,” she said, while employers are also primed to help employees prepare.

The figures come as health care costs in general continue to rise: Employers’ health care costs grew 4.5% in 2024, according to Mercer, and they are expected to increase by an average of 5.8% this year — a figure that accounts for cost-saving measures. Without cost-saving measures, these expenses may grow by an estimated 8%.  

“Uncertainty around future trends in employer costs remains high, particularly as they relate to rising health care costs,” said Andrea Medici, labor economist at SHRM.

Toolkit: Managing Health Care Costs

HSAs 

Fidelity’s estimate, Riggs said, “underscores the important role employers can play not just giving their employees tools to prepare for retirement, but also the importance of providing education and resources to help them understand how they can build a retirement income strategy that fits their desired retirement lifestyle.” 

Health savings accounts (HSAs) are one such important resource. Many industry experts tout HSAs as a smart way for employees to save for medical expenses, including in retirement, citing their triple tax benefits: Contributions are made pretax, the money in the accounts grows tax-free, and withdrawals for qualified medical expenses are also tax-free. More than 60% of employers offer an HSA, according to the 2025 SHRM Employee Benefits Survey.

HSAs are a “critical component of the retirement readiness equation,” said Steve Betts, head of Fidelity Health, but they are underutilized and undervalued by employees. 

Fact Sheet: 2025 Benefit Plan Limits and Thresholds

One of the biggest missed opportunities about HSAs is that users do not utilize the accounts to their full advantage, including by not investing the funds so they grow, industry experts recently said at SHRM25. 

“The piece that’s really misunderstood is how to use the high-deductible plan and the HSA effectively together, and how that integrates with your other financial benefits,” said Kevin Mahoney, managing director at New York City-based financial services firm Raymond James. “The HSA right now, in my opinion, is badly misused. People think of it as a health spending account. It’s not. It’s a health savings account, and people don’t invest it.”

Just 9% invest their HSA funds, according to Devenir, a research and investment consulting firm. 

Employers need to do a much better job helping employees understand how to best manage and use their HSAs to maximize their dollars, particularly in retirement, said Larry Maistelman, a health and welfare consultant at Grand Forks, N.D.-based financial services firm Alerus, speaking at SHRM25. Maistelman explained that companies can involve their 401(k) providers to help educate employees about HSA investing and how that can help them save for health care costs in retirement.