Long-Term Care Planning

Making a plan to cover your long-term care needs in retirement is one of the most challenging aspects of retirement planning. While it’s impossible to know exactly what the future holds, preparing for long-term care (LTC) expenses is crucial to protect your financial security.

Experts such as Christine Benz of Morningstar highlight that the probability of needing LTC is significant. According to AARP, there’s a 50% chance that someone age 65 or older will require some form of long-term care. But these forecasts may not match your personal needs—future expenses could range from little or nothing to hundreds of thousands of dollars for skilled nursing care.

Despite the uncertainty, you can still take effective steps to prepare for LTC and other healthcare expenses in retirement.

LTC Planning with Spouses

Many retirees begin this stage of life with a partner who may be their first primary caregiver. With good health and some luck, some couples manage through retirement with only routine healthcare costs in their 30-year retirement plan. Still, it’s important to recognize that both partners may eventually need outside help.

Caring for Each Other

During the years when both partners are healthy, they can often assist each other with what the LTC industry calls “Activities of Daily Living” (ADLs) and “Instrumental Activities of Daily Living” (IADLs):

ADLs (Basic Self-Care)	IADLs (Independent Living)
Bathing Dressing Eating Transferring (in/out of bed/chair) Toileting Continence	Managing finances Grocery shopping Meal preparation Transportation Housekeeping Managing medications

However, research from the Department of Health & Human Services suggests that about 50% of retirees may need some level of outside LTC support once they can no longer provide ADL and IADL assistance for themselves or each other. It’s wise to prepare for that possibility.

Understanding potential costs is the next step in your planning.

2025 Long-Term Care Cost Snapshot

The table below shows estimated national averages for common long-term care services in 2025 (Genworth Cost of Care Survey):

Type of Care	Average Monthly Cost	Average Annual Cost
Adult Day Healthcare	$1,500	$18,000
Assisted Living Facility	$3,750	$45,000
Homemaker Services	$4,000	$48,000
Home Health Aide	$4,100	$49,200
Nursing Home (Semi-Private)	$7,600	$91,200

Actual costs can vary significantly depending on location and provider.

It’s important to see how these potential costs might impact your own retirement plan.

Scenario Planning with Your Retirement Plan

Test different LTC scenarios using realistic cost estimates:

• Scenario 1: Adult Day Healthcare for one partner, $1,500/month for 1 year
• Scenario 2: Home Health Aide services, $4,100/month for 2 years
• Scenario 3: Nursing Home (Semi-Private), $7,600/month for 3 years

Scenario	Service Type	Monthly Cost	Years Needed	Total Estimated Cost	Key Risks/Notes	Who Pays?
1	Adult Day Healthcare	$1,500	1	$18,000	Part-time, preserves caregiver ability to work	Private pay, Medicaid (sometimes)
2	Home Health Aide	$4,100	2	$98,400	Supports basic ADLs, allows home aging	Private pay, LTC insurance
3	Nursing Home (Semi-Private)	$7,600	3	$273,600	Highest cost, skilled medical care	Private pay, Medicaid, LTC insurance
4	Assisted Living Facility	$3,750	2	$90,000	Some ADLs/IADLs, social environment	Private pay, LTC insurance
5	Homemaker Services	$4,000	1	$48,000	Help with meals, cleaning, shopping	Private pay, Medicaid (rarely)

Test your retirement resources against various scenarios to identify gaps and guide future decisions.

Now, let’s review the main ways people cover long-term care expenses.

Funding Long-Term Care: Your Options

• Long-term care insurance for traditional LTC coverage
• Modern life insurance policies with living benefits
• Asset-based long-term care policies with tax-free benefits

Compare the trade-offs between paying LTC premiums today for guaranteed future benefits versus investing those same dollars on your own (self-insuring). Your risk tolerance and comfort with market volatility play a major role in these decisions.

Here’s a summary table to help you quickly compare the main LTC funding strategies:

LTC Funding Options at a Glance

Funding Option	Premiums/Costs	Guarantees	Tax Treatment	If Not Used
Traditional LTC Insurance	Annual premiums (may increase)	Benefit payments for covered care	Tax-free benefits if eligible	No payout if not used
Asset-Based LTC	Lump sum or single premium	Benefit, often guaranteed	Tax-free for LTC needs	Death benefit or cash value to heirs
Self-Insuring	No premiums; out-of-pocket costs	No guarantees	Subject to investment/tax risk	Unused funds stay in estate

Many myths and misunderstandings surround long-term care. Let’s clear up a few key points:

Myth vs. Fact: LTC Planning

Myth	Fact
“Medicare pays for long-term care.”	Medicare only covers short-term skilled care, not ongoing LTC needs.
“If I stay healthy, I won’t need any LTC.”	Even healthy adults may need help due to accidents, illness, or aging.
“LTC insurance is always too expensive.”	Today’s options include flexible policies and combination solutions.
“If I don’t use LTC insurance, I lose everything I paid.”	Asset-based LTC and hybrid policies may return unused value to your heirs.

Choosing the right funding option can feel overwhelming. Here’s a simple flowchart to help you think through your next steps:

LTC Decision Flowchart

• Do you want guaranteed LTC benefits if care is needed?
• Yes → Consider traditional or asset-based LTC insurance
• No → Consider self-insuring or investing assets for flexibility
• Is leaving a legacy for heirs important?
• Yes → Asset-based LTC or hybrid life policies may be appealing
• No → Traditional LTC or self-insure may be suitable
• Are you comfortable with potential premium increases?
• Yes → Traditional LTC insurance
• No → Asset-based policies (premiums typically fixed)

Before you go, use this checklist to see if you’re covering the key elements of a sound LTC plan:

LTC Planning Checklist

• Have you estimated potential LTC costs using local and national data?
• Have you reviewed care needs with your spouse or partner?
• Did you compare traditional, asset-based, and self-insure options?
• Are you clear on tax and estate impacts of your preferred strategy?
• Have you scheduled periodic reviews as needs or laws change?

Finally, here are answers to common questions about long-term care planning:

Long-Term Care Planning FAQ

• Who typically needs LTC?
  About half of adults age 65+ will need some form of long-term care during their lives. Needs range from a few months of help to multiple years of care.
• Does Medicare pay for long-term care?
  No—Medicare only covers limited skilled care after hospitalization, not ongoing custodial or personal care.
• Can I use annuities to fund LTC?
  Yes. Some fixed index and asset-based annuities offer benefits or multipliers for LTC needs, often with simplified underwriting.
• What happens if I never need LTC?
  With traditional LTC insurance, unused benefits are lost. With asset-based and hybrid policies, unused funds or death benefits may go to your heirs.
• When should I start planning?
  The best time is before you need care—ideally in your 50s or early 60s, when you’re more likely to qualify for coverage and have more options.

Additional Options to Fund Future LTC Services

There are multiple ways to address the cost of long-term care, and each approach has unique trade-offs. Here’s a summary comparison of the most common LTC funding strategies:

Strategy	How It Works	Typical Pros	Potential Cons	Best For
Traditional LTC Insurance	Annual premiums in exchange for LTC benefit payouts when care is needed	✔ Dedicated coverage ✔ Can cover most types of care ✔ May offer inflation protection	✖ Use-it-or-lose-it ✖ Premiums can rise ✖ Medical underwriting	Those seeking comprehensive LTC protection and can afford annual premiums
Asset-Based (Hybrid) LTC	Single premium or policy that combines life insurance or an annuity with LTC benefits	✔ Guaranteed premiums ✔ Death benefit if unused ✔ Return-of-premium options	✖ Larger upfront cost ✖ May not cover all care costs ✖ Less flexibility to adjust coverage	People wanting coverage with value if care is never needed
Self-Funding	Use personal savings, investments, or home equity to pay for care out-of-pocket	✔ Complete flexibility ✔ No premium payments ✔ Assets remain accessible	✖ High risk if costs rise ✖ Erodes inheritance ✖ May require asset liquidation	High-net-worth individuals or those with strong family support

This is a complicated calculation that involves your tolerance for economic risk (stock market volatility) and many other factors.

Developing Your LTC Strategy

Testing scenarios, gathering local cost data, and reviewing available insurance options can help you create a realistic LTC plan. Aim to keep annual retirement spending at or below your income, reinvest any surplus, and revisit your plan as circumstances change. Taking these steps can help you weather the uncertainties of long-term care and maintain your financial well-being throughout retirement.