Balancing retirement costs with long-term care

June 10, 2022

If you think you’ve got your retirement planning covered because you know when you expect to retire and how you’ll pay for it, you may need to think again.

There’s a crucial aspect of retirement planning that many people overlook, sometimes because the costs seem daunting and sometimes because the subject itself seems unpleasant: anticipating the need for long-term care. It’s crucial that you understand the true costs, options, and implications of long-term care, because someone turning 65 today has an almost 70 percent chance of needing long-term care services – and 20 percent of today’s seniors will need it for more than five years.1

It’s a good idea to have this conversation with a financial planning professional, and it’s a good idea to have it in the context of your overall retirement planning. That’s because balancing retirement with long-term care is a challenge for many who will need to pay for both at the same time.


How Much Will This Cost?

Long-term care isn’t a “one size fits all” proposition. For some, in-home care – from a family member, homemaker services, or home health aide – may suffice. Others may need community and assisted-living services, whether through adult day health care, an assisted-living facility, a residential care home or a continuing-care community. Still others may eventually need to move to a nursing-home.

The amount you’ll need to spend for long-term care depends on factors including the amount of services you need and the cost of living in your area. By one estimate, your annual costs can be as much as  $108,000 for a private room in a nursing home.2  and you could need these services for several years or more. 69 percent of people require some type of long-term care for three years.3

To get a better sense of the costs of various service levels in your community, you can start with a long-term care calculator. Check to confirm that the calculator you use is up to date, uses a reputable source or process for estimating local costs, and includes the full range of services you might require. For example, AARP offers a long-term care calculator.4


Your Options

Another reason to plan for long-term care in the context of your broader retirement planning is that there are various investment options and resources you can consider. Your financial professional can suggest the right ones for you, among categories including long-term care insurance, self-insurance, and Medicaid.

Insurance is an increasingly popular way to manage the risk of long-term care. Traditional long-term care policies can cover all or most of these expenses, but it can be helpful to confirm that the policy you consider covers the services you want covered for the length of time with which you’re comfortable. You’ll pay more for inflation-adjusted benefits, but that feature can be worth considering – particularly if you’re buying a policy many years before you anticipate needing it. Policy costs also vary based on your age, sex, and health status.

On the other hand, long-term care policies are generally expensive. Like virtually all insurance, they’re a way to manage, but not eliminate, risk. These policies may end up costing more than what you eventually spend on long-term care. Hybrid policies that include life insurance components and long-term care annuities may be able to help address this concern. They may also have tax advantages, depending on your financial situation.

Self-insurance is an option for those with sufficient resources. It can give you greater flexibility to choose the services you want when you want them without needing to meet an insurer’s qualifications for the types of services it will cover, the eligibility requirements it places on you, and the waiting period it may impose before starting benefits. Health savings accounts are a popular way to prepare for the expenses of long-term care. They use pre-tax dollars but limit the amount you can contribute each year and impose other requirements.

It’s also true that planning to pay for long-term care out of savings can be risky when you don’t know how much you’ll need or when you’ll need it. Another factor to consider is that self-insurance will draw down on the assets you may wish to pass on to your heirs. Many people contemplating self-insurance think about relying on their retirement funds, such as their IRA or 401(k). If you consider this route, ask your financial professional about the tax implications of early withdrawals. On the positive side, the amount you spend to pay for long-term care may be tax deductible.

Government programs can be another way to pay for long-term care. Medicaid (but not Medicare) is an option for those with extremely limited assets – including those who first exhaust insurance benefits and their own assets, including retirement accounts.

Long-term care is complex to contemplate. The sooner you start planning with a trusted financial professional at your side, the better off you’ll be in identifying the strategy that’s right for you.


1.  "How Much Care Will You Need?', Administration for Community Living, February 2020.

2. Cost of Care Survey, Genworth, January 2022

3. "How Much Care Will You Need?', Administration for Community Living, February 2020.

4. Long-Term Care Cost Calculator,  AARP, July 2021

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