Fidelity Just Raised the Retirement Healthcare Number 7.5%. Your HSA Is Probably in Cash.

If you have a health savings account and it is still sitting in cash, log in this week and change that. Fidelity’s latest retiree healthcare number just jumped 7.5%, and 40% of HSA holders are quietly leaving one of the best deals in the tax code on the shelf.

Two data points landed on July 22, and they belong in the same conversation.

The number that jumped

Fidelity’s 25th annual retiree healthcare estimate came out this week. A 65-year-old retiring in 2026 should budget $185,500 for healthcare, from age 65 through end-of-life, in current dollars. Up from $172,500 last year. That $13,000 jump is a 7.5% increase, the biggest single-year change the report has ever printed.

The number breaks down like this: about 45% for Medicare Part B and Part D premiums, 48% for the copays, coinsurance, and cost-sharing on the stuff Medicare doesn’t fully cover, and 7% for prescriptions Medicare’s drug plan doesn’t touch. That is what one person spends. A couple retiring together roughly doubles it. And long-term care is not in the number. Add that and the total goes up sharply again.

Fidelity’s Steve Betts put it plainly: “Medicare is a critical part of retirement health coverage, but it does not eliminate every healthcare expense.”

The tax break most people fumble

Now the second data point. Fidelity’s own client research shows that 40% of HSA holders leave the account balance in cash. Meaning they are getting one of the three HSA tax breaks and passing on the other two.

Here is what an HSA does. Contributions go in pre-tax, the balance grows tax-free, and withdrawals for qualified medical expenses come out tax-free. Three layers of tax break stacked in the same account. No IRA, no 401(k), no brokerage account does all three.

Sitting the balance in cash burns the growth leg. The typical HSA administrator sweep account pays about 0.5% APY. An index fund inside the same HSA has averaged around 7% real returns over long stretches. That gap, compounded for 20 or 30 years, is the difference between covering Fidelity’s retirement healthcare number and covering a fraction of it.

Show the math

A 40-year-old who puts $3,000 a year into an HSA for 25 years and lets it grow at 7% ends up with about $190,000 at 65. Enough, roughly, to cover the entire Fidelity retirement healthcare projection.

Same person, same contribution, but the balance sits in the cash sweep at 0.5%. They end up with about $80,000. Same dollars in, less than half the pile out. The $110,000 gap is the compounding tax break they walked away from.

Do this this week

Log in to your HSA administrator right now. If your balance is in cash and your provider offers an investment option (Fidelity, Optum, HealthEquity, and Lively all do), move most of it into a low-cost broad-market index fund. Keep a cash buffer roughly the size of your annual deductible so you don’t have to sell shares to pay a doctor bill. Then set new contributions to auto-invest so you don’t have to remember every month.

If your provider doesn’t offer investments, or charges a monthly fee to use them, roll the balance to one that doesn’t. Trustee-to-trustee HSA transfers are free and have no tax consequences.

One more move. If you can afford to pay medical bills out of pocket now, do that and save the receipts. HSA rules let you reimburse yourself for a qualified medical expense any time in the future, so paying today with cash and letting the HSA compound is a legal way to shift savings.

Verdict

Dumb math to hold an HSA in cash if you have a long runway to retirement. Take one of the best deals in the tax code and actually use it. This one is not optional.

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