I’m 55 and Just Learned I’ll Need to Save $172,500 More—Just for Healthcare

William planned for the mortgage and put money aside for travel but a new report says he is missing a massive line item in his budget.

The 2025 Fidelity Retiree Health Care Cost Estimate just dropped a bomb on his retirement spreadsheet. A single 65 year old needs roughly $172,500 just to cover medical expenses in retirement.

That number keeps William up at night. But at 55 he still has time to fix this because he has a golden decade left to close the gap.

But here is the good news. If you are 55, you haven’t missed the boat. You have a “Golden Decade” left. This is the prime time to close the gap before you clock out for the last time. Here is exactly how to handle healthcare costs in retirement.

The Breakdown What Does $172,500 Actually Buy

William made a huge mistake assuming Medicare covers everything which is a common error that costs retirees money.

The system has many holes and Fidelity estimates he needs $172,500 to cover premiums and out of pocket costs.

This money does not pay for nursing homes or full time care as it simply keeps basic insurance active. He must plan for these specific costs to be safe.

• Medicare Part B and Part D premiums
• Deductibles and copays for doctor visits
• The 20% of bills that Medicare does not cover
• Excludes dental and vision and hearing costs

1. Maximize the HSA The Triple Tax Weapon

The Health Savings Account is the best tool in the tax code for medical costs and William should prioritize it over his 401k. The IRS raised the limits for 2025 so he can save even more money tax free.

He needs to use this account as an investment vehicle rather than a spending account for current bills. This strategy allows his money to grow tax free for a decade.

• Self coverage limit is $4,300
• Family coverage limit is $8,550
• Catch up contribution for age 55 plus is $1,000
• Triple tax advantage on all funds

2. The Super Catch Up is Coming

The government knows William is behind so they changed the rules to help people in his specific age bracket. The SECURE 2.0 Act created a special savings window for people in their early sixties.

This allows him to put significantly more money into his 401k than younger workers can. Since he is 55 now he has five years to prepare his budget for this massive increase.

• Standard catch up for over 50 is $7,500
• New limit for ages 60 to 63 is $11,250
• Applies to 401k and 403b plans
• Starts in 2025 under new laws

3. Bridge the Medicare Gap

Retiring before age 65 creates a dangerous gap in coverage because Medicare does not start until William turns 65. He must find a way to pay for health insurance without an employer during those early retirement years.

The ACA Marketplace is often the smartest play if he manages his income correctly to get subsidies. This strategy can save him thousands of dollars a year.

• COBRA allows keeping work insurance but costs more
• ACA Marketplace plans offer income based subsidies
• Lower taxable income increases subsidy amount
• Must bridge the gap until Medicare at 65

4. Invest for Growth Not Just Safety

William cannot simply put his healthcare savings in a savings account because medical inflation rises faster than regular inflation. If he leaves the money in cash it will lose purchasing power over the next twenty years.

He needs to keep a portion of these funds invested in the stock market to keep up with rising costs. A conservative growth strategy is essential to ensure the money lasts.

• Medical inflation often runs twice as high as CPI
• Cash savings lose value against rising premiums
• Needs exposure to stocks for long term growth
• Portfolio should shift to conservative mix with age

5. The Missing Piece Long Term Care

The $172,500 figure only covers standard medical issues and explicitly excludes long term nursing care. William needs to realize that Medicare pays zero dollars for custodial care like help with bathing or dressing.

He must decide if he will buy a separate insurance policy or save an additional bucket of money. Ignoring this risk could deplete his other savings rapidly.

• Medicare does not cover custodial nursing care
• Average nursing home costs can exceed $100k a year
• Hybrid life insurance policies offer coverage options
• Self funding requires significant extra assets

6. Health is Wealth Literally

Physical health is actually a major financial asset for William as he approaches retirement. Chronic conditions like diabetes or high blood pressure drive the highest costs in the healthcare system.

Data from Milliman shows that healthy retirees spend less money per year than unhealthy ones. Treating his body well at 55 is the best way to protect his bank account at 75.

• Chronic conditions increase out of pocket spend
• Healthy people pay less annually
• Fitness reduces prescription drug needs
• Better health improves quality of life

Conclusion

The number $172,500 looks scary but William does not need to pay it all today. He has tools available right now like the HSA and new catch up limits to help him prepare.

He should check his 401k contribution rate today and try to increase it by just one percent. His future self will thank him for this planning.