The $185,500 Expense That Could Upend Your Retirement Budget if You Don't Prepare

Many people spend years planning for retirement. And in the course of doing so, you might focus on things like when to sign up for Social Security, how much money to withdraw each year from your savings, and what your expenses might look like.

But in the course of figuring out your retirement finances, there's a big expense you risk underestimating -- healthcare. And if you don't know what you're in for, it could throw your budget for a serious loop.

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Healthcare could be a $185,500 expense

It's probably not a secret that healthcare can be costly in retirement. But the latest number might shock you.

A 65-year-old retiring in 2026 can expect to spend an average of $185,500 on healthcare and medical expenses throughout their senior years, according to Fidelity. That's up 7.5% from last year's estimate.

Of course, that figure won't apply to everyone. But it highlights a reality many retirees fail to understand ahead of time.

Medicare doesn't cover everything, and even covered services can come at a cost to retirees. Premiums, deductibles, copays, dental services, vision care, hearing aids, and other out-of-pocket expenses can add up over a retirement that may last 20 years or longer.

The good news, though, is that once you know how much healthcare might cost you during your senior years, you can take steps to prepare accordingly.

Ways to prepare before you retire

The sooner you start planning for healthcare expenses in retirement, the easier those costs may be to absorb.

One of the best things you can do ahead of retirement is boost your savings. By increasing contributions to your IRA or 401(k), you should have more flexibility to cover any expense in retirement that ends up being larger than expected, including healthcare.

If you're eligible for a health savings account (HSA), it pays to not only fund one of these plans but also reserve all of the money for retirement. With an HSA, your money gets to grow tax-free, and withdrawals used for qualifying medical expenses can be taken tax-free as well.

Bringing an HSA balance into retirement gives you a dedicated pool of funds to pay for healthcare costs. And if you contribute to that account for many years and don't tap it until you're in your 60s, you might enjoy a substantial amount of growth.

It's also important to review your Medicare coverage annually. Medicare Advantage plans can change their premiums, deductibles, provider networks, and covered medications from year to year. Part D drug plan formularies can change annually as well. Comparing plans during Medicare's annual fall open enrollment period could help lower your out-of-pocket costs.

Finally, make sure you fully understand your plan's benefits and rules. Using in-network providers, obtaining required referrals or prior authorizations, and choosing preferred pharmacies can all help keep your costs down.

Similarly, medication switches can sometimes be a huge source of savings. It pays to talk to your provider about cheaper alternatives to the drugs you take or explore generic versions that come with a lower price tag.

Planning today could spare you financial stress later

The amount of money you end up spending on healthcare costs in retirement will hinge on your specific medical needs, your location, and the Medicare choices you make. But the $185,500 estimate above should serve as a reminder that healthcare is something you need to save for specifically.

By boosting your retirement savings, being strategic with your HSA, carefully evaluating your Medicare options, and understanding how your coverage works each year, you can put yourself in a stronger position to manage one of retirement's largest and most unpredictable expenses.

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