Long-Term Care’s Unexpected Costs and Their Effect on Retirement Security
Even a strong retirement savings plan can be derailed by an overlooked and surprisingly common financial burden: long-term care. About 80% of 65-year-olds will need some form of long-term care, according to a report from the Center for Retirement Research at Boston College—and the cost of receiving that care just keeps growing.
EBRI surveyed 2,445 workers ages 20 to 74 about their awareness of, access to and perspectives on LTC financing. An average of four in 10 workers said they are likely to need LTC as they age, yet only 23% of those surveyed had strong knowledge about how to access long-term services and supports.
The cost of a home health aide ticked up 3% in 2024 to an annual median cost of $77,792, while the cost of an assisted living community costs jumped by 10% to a median of $70,800, Genworth and CareScout’s recent Cost of Care Survey found. The annual median price of a semi-private room in a nursing home increased 7% to $111,325, and that of a private room in a nursing home rose 9% to $127,750.
“We don’t have a coherent national strategy at all about long-term care,” says Jae Oh, an education fellow at the Alliance for Lifetime Income’s Retirement Institute and the author of “Maximize Your Medicare.” “It’s kind of left people to fend for themselves.”
Why Retirees Are at Risk
The uncertainty of that long-term care cost is another giant challenge. It is impossible to know how long someone will live, and costs vary by location. For example, a private room in a high-end nursing home can, in certain locations, cost at least 50% more than the national average, according to a report from Vanguard.
There’s also the unknown of what type of care retirees may need later in life, and a continual care facility could require an upfront cost of hundreds of thousands of dollars, followed by a monthly payment, says Lisa Policare, the CEO and co-founder of Penn Wealth Planning, a financial advisory practice of Ameriprise Financial Services.
“It’s pretty cost-prohibitive for most people,” Policare says.
While many retirees rely on Medicare once they hit age 65, the federal health insurance program does not cover long-term care. Medicare only covers up to 100 days in a skilled nursing facility.
Enter private market insurance. Options include life insurance with an add-on rider by which some or all of the death benefits can be accelerated for long-term services; traditional long-term care; and annuity-based solutions, which can allow for guaranteed increased income to provide for long-term care. But options are limited, especially without advance planning, Oh explains.
Older retirees or those with a pre-existing condition may see their applications denied for medical underwriting reasons or for being too costly. Plus, while the Center for Retirement Research reported that one-quarter of 65-year-olds will need intensive care for more than two years, most long-term care insurance policies do not cover more than two years of care.
Planning Is Key
Preparing for health care costs in retirement, including long-term care, requires careful planning and consideration, says Dave Stinnett, Vanguard’s head of strategic retirement consulting.
“We typically see health care as one of the least understood and most underestimated expenses,” Stinnett adds. “Preparing for these expenses can help ensure financial security, as well as peace of mind.”
Planning is so important in part because of the underwriting component that comes with many of the available insurance options.
“The older we get, the more likely it is that we fail underwriting completely, and the more likely it is that we get elevated premium levels,” Oh says. “In addition to the obvious question of cost, it’s more about underwriting and even accessing.”
Annuity-based solutions could still be available, and though they might be complex, in most cases, these do not require medical underwriting, Oh adds. Many states also have a long-term care partnership that shields assets from Medicaid up to the amount that long-term insurance covers, but it is a largely unknown feature, and it requires customers to choose a specific policy that aligns with the state partnership (and is therefore not automatic).
Estate planning and thinking about the potential need for long-term care can help ensure assets and family members are protected.
“What we just try to always bring into focus is the risk to their long-term financial health of the family,” Policare says of speaking with clients. “If you have a married couple and if both have some kind of long-term care needs, that will decimate the portfolio for their children. If one has it, then it really does affect the other person.”
She says that, in general, people should start planning for long-term care costs in their 50s.
Other Ways to Prepare for Long-Term Care Costs
If insurance is not an option, is too expensive or will not cover enough costs, retirees can try to self-fund long-term care.
“If you want to self-fund, let’s make sure that we’re producing enough income on the portfolio so we can turn that income on, in addition to pension or Social Security, to provide the monthly income that you need,” Policare says. Savers do not want to end up depleting assets from their portfolios or having to sell during a market downturn, she adds.
Other options include delaying Social Security and funding a health savings account, according to Vanguard. Policare says tapping home equity can also help with costs, either by downsizing or using a line of credit.
“In the absence of a national strategy, it becomes piecemeal and location-dependent,” Oh says.
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