Long-Term Care
A Hidden Retirement Risk: The Cost of Avoiding Healthcare and Long-Term Care Planning
For many Americans approaching retirement, the focus is often on investment balances, Social Security timing, and creating reliable income streams. And those things are important! But there is a financial retirement risk that can often go underestimated or forgotten that deserves closer attention: healthcare and long-term care costs.
As unpleasant as the topic may be, avoiding this conversation doesn’t make the risk disappear. In fact, delaying healthcare and long-term care planning could increase financial strain later in life, potentially disrupting an otherwise well-constructed retirement plan.
Long-Term Care Is More Common Than Many People Think
Many pre-retirees assume long-term care is something that only affects a small percentage of older adults and assume they won’t be a part of that group. However, statistics suggest otherwise. According to the Urban Institute, the average 65-year-old has a nearly 70% chance of needing some type of long-term care during their lifetime. Furthermore, approximately 20% of adults will require that care for more than five years.
According to the U.S. Department of Health and Human Services, nearly 70% of today’s 65-year-olds will need some form of long-term care during retirement, and roughly 20% will require care for more than five years. Long-term care can include assistance with everyday activities such as bathing, dressing, mobility, meal preparation, or memory support.
Care may come in several forms, including:
- In-home care
- Adult day services
- Assisted living facilities
- Skilled nursing or nursing homes
- Informal caregiving from family members
While many people hope to age independently at home, the cost of even moderate assistance can be substantial, so it’s something worth paying attention to.
The Rising Cost of Care
Long-term care costs have climbed dramatically in recent years. According to AARP’s Public Policy Institute, median long-term care expenses increased sharply between 2019 and 2024, with home care and assisted living costs rising nearly 50%, adult day services rising 33%, and nursing home costs jumping 25%.
Current annual averages nationwide include:
- Around $26,000 annually for adult day services
- Approximately $60,000+ for moderate in-home care
- Nearly $128,000 annually for a private nursing home room
- Roughly $115,000 annually for a semi-private nursing home room
These figures stand in stark contrast to the typical American’s preparation. The median household income for adults 65 and older is roughly $60,000. This means even moderate home care (30 hours per week) can cost as much as an older adult’s entire annual income, while assisted living or nursing home care far exceeds it.
The Medicare Misconception
One of the most common retirement planning mistakes is assuming Medicare will cover long-term care expenses.
Medicare is a federal health insurance program that provides important healthcare coverage for those 65+ or with specific disabilities, including hospital care, physician visits, preventive care, and limited home health services. However, Medicare generally does not pay for ongoing custodial long-term care or assisted living expenses.
Many retirees are surprised to learn that Medicare only covers short-term skilled nursing rehabilitation under limited conditions, and only for up to 100 days following a qualifying hospital stay. Even then, daily copayments ($217 for 2026) apply after the first 20 days.
As a result, retirees often find themselves paying out of pocket much sooner than expected.
Medicaid and the Middle-Income Squeeze
If Medicare won’t pay, many assume Medicaid will. While Medicaid is the largest payer of long-term care services in the United States, qualifying is far from simple.
Eligibility rules are strict and vary by state. In many cases, individuals must “spend down” much of their assets before becoming eligible. This process can be complex, often requiring specialized legal guidance to navigate. Even then, choices around facilities and living arrangements may become limited, and you may be placed in a facility you would otherwise not choose or have to share a room with others.
Middle-income retirees may be affected the most by this as they earn too much for Medicaid but not enough to easily absorb six-figure annual care costs.
Why Early Planning Matters
The good news is that the earlier you plan, the more options you have. Starting earlier may lessen the savings burden through long-term growth and compounding.
Early planning also expands available options, including:
- Long-term care insurance
- Hybrid life insurance policies with long-term care benefits
- Annuities designed to supplement future care costs
- Health Savings Accounts (HSAs)
Long-term care insurance remains one of the more common planning tools. According to the American Association for Long-Term Care Insurance, a healthy 55-year-old man may pay around $1,750 annually for coverage, while women and couples often pay more due to longer life expectancies.
Importantly, premiums generally increase with age, making early evaluation beneficial.
Healthcare Planning Is Retirement Planning
Healthcare and long-term care costs are an important part of retirement planning and should be included in your holistic plan.
Retirement isn’t only about accumulating wealth. It’s also about protecting it from the risks that can quietly erode your financial confidence over time.
The sooner healthcare and long-term care planning become part of the retirement conversation, the more choices retirees are likely to have later in life.
Sources:
https://health.usnews.com/best-senior-living/articles/types-and-costs-long-term-care-facilities
https://www.nia.nih.gov/health/long-term-care/paying-long-term-care
https://www.aarp.org/caregiving/financial-legal/long-term-care-affordability-report/
https://crr.bc.edu/how-much-will-your-long-term-care-needs-cost-it-depends-on-how-average-you-are/
https://health.usnews.com/best-nursing-homes/articles/how-to-pay-for-nursing-home-costs
https://aspe.hhs.gov/reports/what-lifetime-risk-needing-receiving-long-term-services-supports-0
This material is provided as general information and is not intended to be specific financial or tax guidance. Long-term care insurance and life insurance riders contain fees, exclusions, policy charges, and terms for keeping them in force. Product guarantees are backed entirely by the financial strength and claims-paying ability of the issuing insurance company. Before making any decisions regarding your personal financial strategy, you should consult a qualified financial, legal, or tax professional to discuss your individual circumstances and objectives. The source(s) used to prepare this material is/are believed to be true, accurate and reliable, but is/are not guaranteed.
SWG 5506131-0526
Champion Your Health: Empowering Older Americans
Every May, the Administration for Community Living (ACL) celebrates Older Americans Month (OAM) to recognize older Americans’ contributions, examine aging trends, and demonstrate the commitment to serving older adults. In step with that cause, we’re taking this time to honor older Americans by demonstrating our commitment to helping our clients fulfill their vision of retirement.
In 2026, the ACL’s theme for Older Americans Month is “Champion Your Health.” This theme is an invitation to take charge of your physical, mental, and financial well-being—whether that’s getting your daily steps in, spending more time with loved ones, or leaving a legacy. But to truly champion your health as an older American, look beyond physical fitness and consider a strategy that goes a step further and includes thoughtful healthcare preparation as well.
But you can’t champion your overall health if your financial health may be challenged. Let’s look at how planning for healthcare costs in retirement can help empower you to embody OAM’s core message: to live with dignity, independence, and vitality.
Navigating the Landscape of Long-Term Care
One component of championing your health is learning to balance the desire for a comfortable retirement with the need to manage potential healthcare costs and unforeseen expenses. Understanding the actual costs associated with medical care in your later years is an all-too-common challenge, as many retirees underestimate these expenses. However, misunderstanding them can make retirement virtually unaffordable. For instance, an average 65-year-old retiring in 2026 may require approximately $165,000 to cover healthcare expenses throughout their retirement—and this estimate excludes long-term care (LTC) costs, which can vary considerably based on individual needs.
Because LTC costs aren’t covered by standard health insurance or Medicare, they can be considered a significant threat to a retirement nest egg. The truth of LTC is that it’s a “when,” not an “if,” for about 70% of people over 65. Sometimes it involves aging in place with home health aides, other times it involves transitioning to an assisted living facility. No matter the case, long-term care requires meticulous planning—and without proper planning, you could face higher premiums than if you had started early. Remember, premiums are based on your age and health at the time of application, so you may even be denied entirely.
So, how do you avoid that scenario?
Long-Term Care Insurance
Long-term care insurance covers costs for extended in-home care or facility stays (nursing homes, assisted living) for individuals with chronic illnesses, disabilities, or cognitive impairments like Alzheimer’s. It can be beneficial to apply for long-term care coverage while you might still qualify for preferred rates due to the relatively low risk of needing to use the coverage soon. Locking in lower rates while young and healthy can potentially empower you to facilitate a more dignified lifestyle in retirement.
LTC insurance is unique because of how customizable it can be, meaning you can tailor a policy to your specific financial goals and family situation. For example, some LTC policies include inflation protection features that can help your coverage benefits grow by the time you need to use them—another reason to start while you’re young. If you’re in your 20s, 30s, or 40s, you have a meaningful advantage: time. Unlike a 65-year-old who might invest conservatively, a 30-year-old can invest for long-term care decades before they might need to use it.
Self-Funding Your Long-Term Care
Choosing to self-fund healthcare involves implementing a strategy where you manage the financial risk yourself. If you retire before 65, you aren’t yet eligible for Medicare and thus may be looking to bridge the coverage gap until then. For example, if you required LTC later in life and had dedicated a bucket of your savings and/or investments for that expense during your working years, you could reduce the strain those expenses could have on your financial situation. A dedicated long-term care bucket in your portfolio that’s invested in a strategy aligned to your risk tolerance. This method could potentially turn a modest monthly contribution into a helpful self-insurance fund down the road. But how and where you put those savings or investments is key…
Health Savings Accounts
A powerful way to fund your own healthcare costs is through triple tax-advantaged health savings accounts (HSAs). These offer the ability for your money to go in tax-free, grow tax-free, and be withdrawn tax-free for medical and LTC expenses. You can contribute to an HSA while you’re still working, and, once you turn 65, you can use the HSA funds to pay for Medicare Part B and Part D premiums. In 2026, you can even use HSA funds to cover qualified LTC insurance premiums. But access to these accounts can be stricter as they’re often offered through employers, and you must have a specific kind of health coverage to qualify for opening one.
Going the Distance: Our Commitment to Your Empowerment
As we celebrate Older Americans Month, let’s reframe what it means to grow older. It isn’t just about adding years to life but adding life to years. It’s about vitality. It’s about developing a strategy for independence and self-determination. Successful aging begins long before you reach “senior” status. Retirement planning is a lifelong journey of financial management that requires both foresight and flexibility. If you don’t carefully plan for your healthcare in retirement now, you could end up with a greater financial burden than was necessary. That’s why it’s important to be proactive. Even the most health-conscious individuals might find themselves in need of expensive healthcare services later in life.
But regardless of where you are in your journey toward retirement, there may be more options than you think. So don’t wait. Call us so we can discuss ways to manage your financial strategy and help you pursue your goals in the later years.
