Long-term care – assistance with daily activities like bathing, dressing, and eating – is one of the largest financial risks in retirement. About 70% of people over 65 will need some form of long-term care, and costs can quickly deplete a lifetime of savings. This guide explores long-term care risks, insurance options, and strategies for protecting your assets and family.
In This Article
1Understanding Long-Term Care Costs
Long-term care costs vary significantly by type and location. In 2025, the national median cost for a private nursing home room exceeds $110,000 annually. Assisted living facilities average $60,000 per year. Home health aides cost $30-35 per hour, potentially $70,000+ annually for full-time care. These costs typically increase 3-5% annually. The average nursing home stay is 2.5 years, but many people need care for much longer. Without planning, these costs can devastate retirement savings.
2Traditional Long-Term Care Insurance
Traditional LTC insurance pays a daily or monthly benefit when you need long-term care. Policies typically cover nursing homes, assisted living, and home care. Benefits are triggered when you cannot perform 2 of 6 activities of daily living or have cognitive impairment. Premiums depend on age at purchase, benefit amount, benefit period, and optional features like inflation protection. The younger you buy, the lower the premium, but premiums can increase over time. Traditional LTC insurance provides dedicated coverage but has use it or lose it risk.
3Hybrid Life/LTC Policies
Hybrid policies combine life insurance with long-term care benefits. If you need care, the policy pays LTC benefits. If you do not need care, your beneficiaries receive a death benefit. Some policies allow return of premium if you change your mind. However, they require larger upfront payments and may provide less LTC coverage per dollar than traditional policies.
4Self-Funding Long-Term Care
Some people choose to self-fund potential long-term care costs rather than buying insurance. This approach makes sense if you have substantial assets (typically $2 million+), can afford to lose a significant portion to care costs, or have health conditions that make insurance unavailable or unaffordable. Self-funding requires setting aside dedicated assets for potential care needs and accepting the risk that costs could exceed your reserves. Consider this approach carefully with professional guidance.
5Medicaid Planning Considerations
Medicaid covers long-term care for those who meet income and asset requirements. However, qualifying typically requires spending down most assets first. Medicaid planning strategies can help protect some assets while qualifying for benefits, but rules are complex and vary by state. Strategies include certain trusts, spousal protections, and asset transfers (subject to look-back periods). Medicaid planning should begin years before care is needed and requires guidance from an elder law attorney.
Key Takeaways
- 70% of people over 65 will need some long-term care
- Nursing home costs exceed $110,000 annually on average
- Traditional LTC insurance provides dedicated coverage but premiums can rise
- Hybrid policies combine life insurance with LTC benefits
- Medicaid planning should begin years before care is needed
Conclusion
Long-term care planning is essential for protecting your retirement savings and your family from potentially catastrophic costs. Whether you choose traditional LTC insurance, hybrid policies, self-funding, or Medicaid planning, having a strategy in place provides peace of mind and financial protection. Start planning in your 50s or early 60s when insurance is more affordable and more options are available.