You’ve worked hard, saved wisely, and planned for a fulfilling retirement. But what if the unexpected happens, like early-onset Alzheimer’s or a serious health event that changes your day-to-day life?
We’ve heard it often: “It wasn’t supposed to happen this way.” We don’t plan to need long-term care, but we do need to plan how we would pay for it, just in case.
One of retirees’ most significant challenges is covering the cost of long-term care (LTC). It’s not just about dollars; it’s about preserving independence, protecting your family, and ensuring your financial plan stays on track.
Let’s break down what LTC is, how much it costs, and your options for funding it.
What Is Long-Term Care?
Long-term care refers to the services and support needed when a person cannot perform at least two activities of daily living, such as bathing, dressing, eating, or getting in and out of bed.
It’s not typically covered by standard health insurance or Medicare. While Medicare may pay for up to 100 days of skilled nursing care, it doesn’t cover custodial care, such as help with daily living over the long term.
And most of us will need some form of care. According to LongTermCare.gov, 70% of people age 65 and older will require LTC during their lifetime, and 20% will need it for five years or more.
The Cost of Care
LTC costs vary depending on location and the type of care needed. Nationally, the median annual cost of a private nursing home is $127,000, and in Colorado, it’s even higher at $152,000, up 21% in just one year. Those who would like the same private nursing services at home 24/7 will pay anywhere from $215,000-$310,000 a year. Part-time home care isn’t cheap, roughly $65,000 a year for 40 hours a week, but it’s more flexible. The cost depends on how many hours the nurse is needed.
These costs are rising faster than the inflation rate. At an average annual increase of around 5.5%, these costs can quickly derail even the best-laid plans.
Types of Long-Term Care
There are four main types of LTC. Here they are listed from least to most costly:
- Home care: Part-time skilled or unskilled services delivered in the comfort of your home.
- Assisted living: Support with daily activities in a residential setting (but usually without 24/7 medical supervision).
- Skilled nursing facilities: 24-hour care for those with significant medical needs.
- 24/7 at-home nursing care: This type of care is available 24 hours a day for those with significant medical needs who want to stay in their homes.
Having a plan can help you maintain control over the type of care you receive.
How to Fund Long-Term Care
Understanding potential funding sources is a wealth planning activity. We suggest working with your advisor to develop a plan. Here, we explore your options, which can be combined to meet your funding needs.
- Personal Savings & Assets
Some people choose to self-fund their LTC. If you go this route, ensure you’ve set aside enough to cover three or more years of care—at today’s rates, that could be $400,000 or more. Sources might include retirement accounts (401(k), IRA, Roth), and taxable investment accounts.
Do you have a Health Savings Account (HSA) or Retiree Health Account (RHA)? In that case, it’s a triple-tax-advantaged way to cover qualified LTC premiums for traditional LTC insurance policies and qualified LTC expenses.
- Sell Your Home
If you are single and no longer need your home, selling it to help move into a nursing home facility is easy. If someone else still lives there, we will help you determine your options and the next steps.
- Reverse Mortgage
Today’s reverse mortgages are safer than ever and can efficiently tap into equity while staying in your home. Depending on your needs, there are several options to choose from.
- Traditional LTC Insurance
These policies are designed to cover LTC costs. Premiums are lower when purchased in your 50s or early 60s and are influenced by age, health, and gender. Policies typically cover 1–5 years of care. Inflation protection riders help your benefit keep pace with rising costs. Premiums can be tax-deductible depending on your age and income. Employer group plans may offer lower-cost options with a higher probability that the insurance carrier will cover you. It’s critical to understand that premiums can increase over time, so this isn’t a “set it and forget it” option.
3. Hybrid Insurance Policies
Hybrid policies combine life insurance with LTC benefits, allowing you to access your death benefit early to pay for care. Linked-Benefit Policies provide a pool of LTC benefits and a residual death benefit. These are appealing because you (or your heirs) can receive money back from the policy even if you never need LTC. While more expensive upfront, the premiums are fixed and won’t increase.
4. Synthetic LTC Plans
Can’t get LTC insurance—or prefer not to? Some clients use a synthetic LTC strategy using low-cost variable annuities. Investment-Only Variable Annuities (IOVAs) offer tax-deferred growth with flexibility to withdraw funds if care is needed. IOVAs can be a great fit if you’re ineligible for insurance due to medical conditions, and they pass assets to heirs if not used.
5. Government Programs
There are also several programs for those who need financial assistance.
Final Thoughts
Long-term care planning is about much more than insurance or assets. It’s about ensuring your care aligns with your values and lifestyle, while minimizing the burden on your family.
As your advisor, we’re here to help you explore the best funding options based on your unique situation. Let’s talk about how to build LTC into your long-term plan—so you can focus on living well today, with peace of mind about tomorrow.