Healthcare Costs in Retirement: Why Most Retirees Underestimate This Expense

Markets start 2026 with tentative optimism as tech stocks stabilize

The quick scan: US stocks kicked off the new year with mixed signals on Friday, 2 Jan. The Dow gained ground on strength in industrials and financials, while tech stocks showed signs of stabilization after a rocky end to 2025. Investors appeared cautiously optimistic heading into the first full trading week of 2026.

S&P 500: +0.19% to 6,858.79 – The broad market index edged higher, holding near record territory as year-end tax selling subsided
Dow Jones: +0.66% to 48,382.39 – Blue-chip stocks led gains, with traditional economy sectors outperforming as investors rotated away from concentrated tech bets
NASDAQ: -0.03% to 23,235.63 – The tech-heavy index traded nearly flat, showing resilience after concerns about AI capital expenditure dominated the final weeks of 2025.

What's driving it: The first trading session of 2026 reflected a market still digesting 2025's strong gains (S&P 500 up 16% for the year) while weighing fresh questions about tech valuations and Federal Reserve policy. With the traditional "Santa Claus rally" period fizzling out, traders are positioning for what many strategists predict will be a fourth consecutive year of gains – though perhaps more volatile than the last three.

Bottom line: For L-Plate Retirees, the modest start to 2026 reinforces a familiar theme: steady wins the race. While tech stocks grab headlines, the Dow's outperformance shows that diversified portfolios with exposure to financials, industrials and consumer staples can provide stability when growth sectors wobble. As you rebalance for the year ahead, remember that yesterday's winners aren't always tomorrow's – and that's exactly why we diversify.

The Retirement Expense That Catches Almost Everyone Off Guard

The scoop: There's a number floating around retirement planning circles that should make you sit up straighter: $172,500. That's what Fidelity estimates a 65-year-old retiring in 2025 will spend on healthcare throughout retirement. The kicker? Most people guess about $75,000 – less than half the actual amount.

Welcome to retirement's most underestimated expense.

According to Bureau of Labor Statistics data, retirees aged 61 to 78 spend an average of $5,850 per month, or roughly $70,000 annually. That's about 27% less than pre-retirement spending, which makes sense – the mortgage might be paid off, the commute is history, and those power suits can finally retire too. But here's where it gets interesting: while overall spending drops, healthcare costs climb. And climb. And keep climbing.

Consider this: people 55 and older account for 56% of total health spending in the US, despite making up just 31% of the population. By age 65, annual out-of-pocket healthcare costs average around $6,500 per person – or $13,000 for a couple. That's before you factor in the surprise expenses: the chronic condition that develops at 72, the specialist who doesn't take Medicare, the prescription that somehow isn't covered, or the dental work Medicare simply won't touch.

Here's what makes this particularly tricky – healthcare isn't a lump sum you pay once and forget. It's an ongoing budget item that grows over time, often accelerating after age 75 when medical needs typically increase. As of June 2024, medical care prices rose 3.3% year-over-year, slightly outpacing overall inflation. And unlike your grocery bill, you can't just decide to skip healthcare when prices spike.

The real surprise isn't that healthcare costs money in retirement – we all know that. The surprise is how much of your retirement budget it can consume when you haven't planned for it. One in five Americans admits they've never considered healthcare costs in retirement planning. Not once. It's the financial equivalent of packing for a month-long trip and forgetting your shoes.

Medicare helps, certainly. But it's not the safety net many assume it to be. Those Fidelity estimates assume you're enrolled in Medicare Parts A, B and D – and they still land at $172,500. That covers premiums, co-payments and other out-of-pocket costs for medical care and prescription drugs. What it doesn't cover: long-term care, most dental work, vision care, hearing aids, and a host of other expenses that become more common as we age.

Think of Medicare as a good umbrella in a rainstorm – helpful, necessary, but it won't keep your feet dry if you're standing in a puddle. You still need the boots.

So where does this leave us? Not panicked, hopefully, but certainly more prepared. The difference between underestimating healthcare costs by $100,000 and planning for them accurately could mean the difference between running out of money at 82 and living comfortably into your 90s. That's not a small margin of error.

The good news – and yes, there is good news – is that planning ahead gives you options. Health Savings Accounts offer a triple tax advantage if you're still working. Understanding Medicare enrollment periods prevents costly penalties. Shopping around for Medicare Advantage plans or Medigap policies can save thousands over time. Even small adjustments now, like factoring an extra $500-$700 monthly into your retirement budget for healthcare, can prevent major stress later.

Because here's the thing about retirement expenses: they're not mysterious. They're just often invisible until you're living them. Housing, food, transportation – these we understand instinctively. Healthcare? That requires a bit more imagination and a lot more planning.

The goal isn't to have a perfect estimate down to the dollar – that's impossible anyway. The goal is to be in the right ballpark, with a cushion for the inevitable curveballs. Because the only thing worse than an expensive medical bill in retirement is an expensive medical bill you never saw coming.

Actionable Takeaways for L-Plate Retirees:

• Budget realistically: Plan for $500-$700 monthly in healthcare costs at minimum – and understand this number will likely grow as you age. Build this into your retirement calculations now, not later.

• Maximize your HSA if you have one: If you're still working and have access to a Health Savings Account, contribute the maximum allowed ($4,300 for individuals, $8,550 for families in 2025). The triple tax advantage – deductible contributions, tax-free growth, and tax-free withdrawals for qualified expenses – makes this retirement healthcare's secret weapon.

• Understand Medicare's gaps: Don't assume Medicare covers everything. Research Medigap policies or Medicare Advantage plans before you turn 65. Missing enrollment periods can result in permanent penalties and higher costs.

• Consider location in your retirement planning: Healthcare costs vary significantly by state and even by city. The most expensive areas for health spending are in New York, Alaska and West Virginia, while other regions offer more affordable options. Your retirement destination affects more than just your property taxes.

• Plan separately for long-term care: Neither Fidelity's $172,500 estimate nor Medicare coverage includes long-term care or nursing home facilities. This is a separate planning consideration that deserves its own attention – and potentially its own insurance policy.

• Start the conversation now: If you're 55 or older and haven't discussed healthcare costs with your financial advisor or retirement planner, make that call this week. The earlier you incorporate realistic healthcare expenses into your retirement plan, the more options you'll have to address them.

Your Turn:
What healthcare expense in retirement concerns you most – and have you started planning for it?
If you could go back five years, what would you tell yourself about preparing for healthcare costs in retirement?
How do you balance enjoying retirement now with saving enough to cover rising healthcare costs in the future?

👉 Hit reply and share your thoughts – your answers could inspire fellow readers in future issues.

☕If this issue helped you think differently about retirement healthcare planning, consider supporting us on Ko-fi. Your contribution helps us continue researching the real numbers behind retirement – not the rosy assumptions, but the practical realities that help you plan with confidence.

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