The Importance of Planning for Long-Term Care
Once they realize that the golden years are no longer far off in the future, some people begin to focus on their retirement readiness and what steps are necessary. One key item that should be a priority is healthcare.
Here’s the hard truth: only 28% of pre-retirees have started saving for their long-term care (LTC) needs, and only 11% have purchased LTC insurance.1
Defining Long-Term Care
In general, LTC helps people who can no longer manage Activities of Daily Living (ADLs), such as walking, bathing, and dressing, to continue living independently and safely. LTC encompasses assistance provided both in the home and in residential facilities, including nursing homes.
Long-term care needs may begin unexpectedly—due to an accident or health crisis like a stroke—or gradually develop over time due to age-related changes or chronic illness. In some situations, family members may be willing and able to step up to supplement care, but for many, this is not possible due to physical, emotional, or logistical challenges.
Medicare covers a variety of healthcare costs after age 65 but does not pay for custodial care, the type of long-term personal assistance most people need.
This is a critical gap, as approximately 49% of men and 64% of women reaching age 65 today will incur significant long-term care expenses during their remaining lifetime.2
Key Questions for LTC Planning
Having a plan to address long-term personal care in the event it’s needed is important to ensure you and your retirement assets are protected, and as you consider how to handle potential LTC needs, here are the critical questions to ask.
What Does LTC Cost?
According to a 2024 survey, the national median costs for all types of LTC service ranged from $26,000 to $128,000 per year. Those costs varied significantly based on the level and setting of care, for example:
• Adult daycare costs around $26,000 per year.
• The annual cost of residence in an assisted living community was about $71,000.
• In-home care with professional hands-on personal assistance (with bathing, dressing and feeding) was nearly $78,000 per year.
• A private room at a skilled nursing facility had an annual cost of $127,750.3
How do People Pay for LTC?
It is estimated that 30% of Americans age 65 and older may never need LTC services.4 While not everyone will need LTC, everyone should consider how they would finance it if they do need care. Here are the most common options:
• Self-funding. Some Americans will have accumulated enough wealth to pay the costs of LTC directly.
• LTC insurance, hybrid insurance, or annuities. People who have accumulated significant savings for retirement and want to protect their savings for themselves, and their spouse may choose to purchase an insurance policy or annuity that will help cover the cost of LTC.
• Government programs. Medicaid, the public healthcare program for Americans with limited financial means, does cover some LTC costs. However, the eligibility requirements are complex, vary by state, as well as the applicant’s marital status and a certain threshold of countable assets.5
The Department of Veterans Affairs covers home and community services for qualifying veterans. However, residential care coverage is limited, even for those who qualify.6
Which Option is Right for Me?
In general, your income, savings and investments, health status, and a few other factors will determine which option – or combination of options – will help you meet your goals. Here’s what you need to know:
• Traditional LTC insurance helps pay related costs through reimbursement or indemnity plans. Reimbursement plans require the policyowner to submit receipts for payment, and indemnity plans pay a monthly benefit to the policyowner.
• People who want to purchase traditional LTC insurance must meet strict underwriting standards. The cost of insurance is determined by the applicant’s health and age, and some may not qualify.
• Some whole and universal life policies have LTC options. Policyowners can draw down the insurance policy’s death benefit to pay LTC costs. If the policyowner needs LTC, the policy provides a monthly benefit until the death benefit is exhausted. If LTC is not needed, the beneficiary receives a tax-free payment when the owner dies. If some money is taken to cover LTC costs, the beneficiary receives a reduced amount. Applicants must qualify, although people who have whole or universal life insurance policies may be able to exchange their current policies for policies with LTC features.
• There also are hybrid life insurance / LTC policies that offer a death benefit equal to the amount of money the policyowner pays into the contract, though it can also be higher. People who want to purchase hybrid LTC insurance must meet strict underwriting standards.
• There are also annuities that have features designed to help offset the cost of LTC, even if they aren’t technically LTC insurance. Annuities often are included in retirement portfolios because they help protect against market losses, provide opportunities for growth, and deliver guaranteed lifetime income.
Pre-retirees may want to consider annuities with multiplier riders. For example, owners of income-multiplier annuities who meet certain criteria related to their ability to complete certain self-care functions, may receive double their lifetime payment amount for up to five years.
Having an LTC plan can help ensure your retirement strategy covers your future health needs and protects your income should you ever need LTC care. To learn more about long-term planning and the range of options available to you, contact us today. We can help.
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1 SingleCare.“Long-Term Care Survey.” Feb. 7, 2024
3 Genworth and CareScout. “2024 Cost of Care Survey.” March 4, 2025
4 HHS and theAdministration for Community Living. “How Much Care Will You Need?” February 2020
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