All NewsOctober 2, 2026

Retirees risk disaster over 3 widely held money myths

Retirement planning often rests on three assumptions: Expenses will decline, Social Security will cover most income needs, and Medicare will handle most healthcare costs.

Millions of Americans build their financial plans around these assumptions, treating each one as a certainty without testing it against data.

The Bureau of Labor Statistics (BLS), the Social Security Administration (SSA), and Fidelity Investments have all released figures in the past year that directly contradict the most common beliefs retirees hold as they enter their post-working years.

The gap between what people expect retirement to cost and what it demands has widened with each new data update.

Retirement spending does not drop as sharply as most people assume

The belief that monthly expenses will shrink the moment work stops has shaped retirement plans for decades. Commuting costs, work attire, and weekday lunches do disappear, but the remaining bills stay remarkably close to working-age levels.

The BLS Consumer Expenditures Survey paints a discouraging picture, with data that undercuts the idea of a steep spending decline in retirement. 

Housing, utilities, food, transportation, and insurance do not disappear simply because people leave the workforce, and a retiree still having a mortgage faces most of the same fixed obligations as a working-age household. 

Work-related savings tend to be smaller than anticipated because retirees often replace commuting hours with travel, hobbies, and entertainment that add new costs.

Retired households spent an average of $59,616 in 2024, up from $46,118 in 2020, BLS Consumer Expenditure Survey data, compiled by the Federal Reserve Bank of St. Louis, showed, meaning spending for the typical retiree has risen about 29% over four years.

Also Read: Social Security’s biggest check locks out most retirees

Social Security replaces far less income than most workers expect

The next widespread assumption is that Social Security benefits will cover most or all of the costs once paychecks stop arriving. For a worker earning an average income over a full career, the program was never designed to function as anything close to a full income replacement.

SSA actuaries calculated replacement rates across a full range of income levels in a June 2026 analysis of the program’s benefit formula. 

For a worker with medium average career earnings of $72,026 per year, Social Security replaces just 41% of pre-retirement income, AARP reported.

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The rate falls to 33.7% for high earners averaging $115,241 annually and drops further to 26.9% for those with maximum average career earnings of $177,894, the SSA analysis showed.

T. Rowe Price recommends starting with a 75% income replacement rate, the share of pre-retirement income a retiree needs to maintain their lifestyle once full-time work ends.

Social Security replaces just 41% of average career earnings, leaving many workers to fund a significant share of retirement through other income sources.

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Fidelity’s $185,500 healthcare estimate exposes what Medicare does not cover

Fidelity Investments’ 25th annual Retiree Health Care Cost Estimate projects that a 65-year-old retiring in 2026 will spend an average of $185,500 on out-of-pocket healthcare throughout retirement. 

That number represents a 7.5% jump from the prior year, driven by rising medical prices and growing costs tied to chronic conditions.

Steve Betts, head of Fidelity Health at Fidelity Investments, said the gap between what Medicare pays and what retirees owe out of pocket remains one of the most underestimated costs in retirement planning.

<strong>Medicare is a critical part of retirement health coverage, but it does not eliminate every health care expense. This estimate helps illustrate why both pre-retirees and retirees alike will benefit from carefully considering out-of-pocket expenses and how they will pay for them as they build out their retirement income strategy</strong>.

The estimate factors in Medicare Parts B and D premiums, copayments, coinsurance, and deductibles, along with certain services Original Medicare excludes, such as vision and hearing exams, Fidelity reported.

The projection does not include long-term care, most dental services, or over-the-counter medications. More than half of pre-retirees, at 54%, still incorrectly believe that Medicare will handle all of their healthcare expenses.

Medicare Parts B and D premiums account for about 45% of the projected cost, while copayments, deductibles, coinsurance, and services not fully covered by Medicare add another 48%, Fidelity found. 

The remaining 7% covers out-of-pocket prescription drug expenses, co-payments, and amounts Medicare Part D does not cover on generic, branded, and specialty drugs.

BLS, SSA, and Fidelity data point to a wider funding gap than most plans assume

Retirement plans built on outdated assumptions carry real financial risk, with the Center for Retirement Research at Boston College estimating that nearly half of working-age U.S. households are on track to fall short of their pre-retirement living standard. 

AARP points out that personal savings and investments may need to cover roughly twice the income Social Security alone provides for medium and high-earners, underscoring the weight private assets carry in a workable retirement plan.

Fidelity’s estimate underscores the need for workers to stress-test their savings rate, review their Medicare assumptions, and model actual projected spending.

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