Long-term care costs Medicare won’t cover can become one of the largest financial risks a family faces in retirement, yet they are often absent from the retirement planning conversation until somebody actually needs care. By that point, many of the best planning options may already be limited.
Nobody particularly enjoys thinking about needing help bathing, getting dressed, eating, walking or safely managing daily life. It is even more difficult to imagine what dementia or another form of cognitive decline could mean for a spouse or adult children who suddenly become responsible for coordinating care.
That discomfort, however, is exactly why long-term care deserves to be discussed before there is a crisis.
What long-term care actually means
Long-term care is not necessarily medical treatment. In many cases, it is assistance with everyday living.
Insurance policies and government programs generally look at a group of tasks known as the activities of daily living, or ADLs. These include things such as bathing, dressing, eating, toileting, transferring, continence and walking. Long-term care can also include supervision for cognitive conditions such as Alzheimer’s disease or dementia, where a person may remain physically capable of performing many tasks but can no longer safely live alone.
This type of assistance is commonly described as custodial care, and that distinction becomes extremely important when we begin looking at Medicare coverage.
Long-term care can also take many forms. Some people may receive assistance in their own homes. Others may move into independent living before eventually requiring assisted living, memory care or a nursing facility.
A single person’s care needs may move through several of these stages over time.
The odds of needing long-term care are significant
According to the figures Kyle discusses in the video, roughly 70% of adults reaching age 65 will eventually develop a serious long-term care need.
Among those who need care, the average duration is approximately 3.2 years for men and 4.4 years for women. Around 48% of people are expected to use some form of paid care during their lifetime.
Those statistics matter because even a relatively average care event can create a substantial financial obligation.
Using recent national median costs referenced in the video, in-home care at 44 hours per week can run roughly $80,000 annually. Assisted living is approximately $74,400 per year. A semi-private nursing-home room approaches $115,000 annually, while a private room can cost close to $130,000.
These are national medians, and actual costs vary significantly depending on location, facility, level of care and the specific services required. Care costs have also been rising rapidly over time.
When several years of care are involved, a realistic planning number for a married couple can easily reach several hundred thousand dollars.
What Medicare actually covers
This is where one of the most common misunderstandings about retirement healthcare begins.
Medicare can cover certain forms of short-term skilled care, meaning care that requires a licensed medical professional. A common example would be rehabilitation following a qualifying hospitalization for a stroke, hip replacement or another significant medical event.
Under the circumstances Kyle describes in the video, Medicare Part A may cover up to 100 days in a skilled nursing facility during a benefit period following a qualifying hospital stay.
The first 20 days can be fully covered. Beginning on day 21, coinsurance applies, and after day 100 Medicare coverage ends.
But even those rules are not the central issue for most long-term care planning.
The much larger issue is that Medicare generally does not cover long-term custodial care simply because someone needs help with everyday life.
If somebody needs assistance bathing, dressing and eating, requires ongoing dementia supervision, or spends years receiving help in assisted living, those expenses do not suddenly become Medicare-covered medical treatment simply because they are necessary for the person’s wellbeing.
That is the healthcare bill Medicare will not pay.
If Medicare doesn’t pay, who does?
For many households, the first answer is simply their own assets.
Most Americans do not own dedicated long-term care insurance, so their savings, investments and other assets become their de facto long-term care plan.
That is not necessarily a bad strategy. For households with sufficient resources, intentionally self-funding long-term care can offer considerable flexibility.
The important distinction is between deliberately choosing to self-fund and simply discovering during a crisis that there is no other source of funding.
Using assets strategically to self-fund care
One asset that can play an important role is the family home.
For many retirees, home equity represents one of the largest items on the household balance sheet. If a future care event means the homeowner eventually moves permanently into assisted living, memory care or a nursing facility, the house may no longer serve the same purpose.
A family that is comfortable selling the home in that situation may therefore treat home equity as a designated long-term care reserve.
That can potentially allow other investment assets to remain invested rather than keeping an unnecessarily large portion of the portfolio liquid for a future expense that may never occur.
Health Savings Accounts can also become valuable planning tools for households that qualify to contribute to them.
Because long-term care is generally a later-life expense, someone who begins building and investing an HSA years before retirement may have decades for that money to compound. Entering retirement with a significant pool of tax-advantaged assets already earmarked for healthcare and care-related expenses can reduce the pressure placed on the rest of the portfolio.
Self-funding tends to make the most sense when a household could absorb a multi-year, six-figure care event without jeopardizing the financial security of a surviving spouse or undermining other important goals.
Long-term care insurance
Another approach is traditional standalone long-term care insurance.
At its core, traditional long-term care insurance is pure risk transfer. The household pays a premium in exchange for benefits if a qualifying care event occurs.
For the right household, that can remove a large unknown expense from the retirement plan and allow more of the portfolio to remain dedicated to spending, investing or ultimately passing wealth to beneficiaries.
The long-term care insurance market, however, has changed considerably.
Earlier generations of policies were often more generous than the products available today. Insurers underestimated how many policyholders would retain their coverage and how long claims would last, eventually resulting in significant premium increases across parts of the industry.
Modern policies tend to be more tightly defined, with benefits commonly limited to a specific period such as three to five years rather than providing unlimited lifetime coverage.
That does not necessarily make the insurance unattractive, but it means the decision should be based on the actual benefits, premiums, inflation provisions, insurer strength and how the policy fits within the broader retirement plan.
Medicaid as the safety net
Medicaid, rather than Medicare, is one of the country’s largest sources of funding for long-term care.
For many people, however, Medicaid effectively becomes available only after they meet strict financial eligibility requirements.
That generally means households cannot simply preserve all of their assets while asking Medicaid to pay for care. Income and asset limits apply, and federal rules include a multi-year look-back period for certain asset transfers.
Some families intentionally incorporate Medicaid eligibility into estate and long-term care planning, particularly when preserving assets for heirs is a major objective.
That type of strategy requires careful legal planning well in advance. Medicaid rules vary by state, and anyone seriously considering this approach should work with an elder-law attorney familiar with the laws where they live.
There can also be trade-offs in terms of available facilities, care settings and flexibility, which makes Medicaid planning very different from simply choosing to self-fund or purchase insurance.
What about relying on family?
Family is another enormous source of long-term care.
Spouses, children and other relatives frequently provide assistance because they genuinely want to help, and that support can be extraordinarily valuable.
The danger comes when family assistance becomes the entire financial plan.
A child who lives nearby today may live across the country fifteen years from now. Careers change, marriages change, grandchildren arrive, health problems develop and financial circumstances evolve.
A retirement plan that requires an adult child to remain healthy, available and geographically close decades into the future is therefore relying on several assumptions that may never come true.
A better approach is to build the financial plan assuming family will not be required to provide care. If family members are willing and able to help later, their involvement becomes an additional source of support rather than something the entire strategy depends upon.
When should you start planning?
Kyle generally favors addressing the question in a person’s late 50s or early 60s, although planning can still be valuable outside that window.
There are several advantages to making the decision earlier.
Insurance-based solutions usually require medical underwriting, meaning age and health can materially affect both eligibility and cost. Someone who waits until their late 60s or 70s may discover that coverage has become significantly more expensive or that a health event has made qualifying difficult.
Starting earlier also benefits people who ultimately decide against insurance.
If you decide at 55 that you will self-fund a future care event, you may have 10 or 15 years to deliberately build the appropriate reserves, invest an HSA, decide how home equity fits into the strategy and allow compounding to work in your favor.
The decision itself creates value because it turns an unknown future liability into something the financial plan has already addressed.
Long-term care planning is really retirement planning
Long-term care is often presented as an insurance question, but that framing is too narrow.
It is ultimately a retirement funding question that may or may not have an insurance component.
The planning process should begin by asking what a realistic long-term care event would actually do to your financial plan.
What happens if one spouse requires three years of care costing tens of thousands of dollars each year? Can the portfolio absorb it while continuing to provide income for the healthy spouse? What if that spouse later requires care as well? Do estate and legacy goals still work after those expenses are included?
Only after answering those questions can you determine whether there is actually a funding gap.
If the financial plan already supports the expense comfortably, self-funding may be perfectly reasonable. If a significant gap appears, insurance or another funding strategy may become more valuable. Some households may ultimately use a combination of approaches.
The goal is not to predict exactly whether long-term care will happen or what form it will take. Nobody can know that.
The goal is to make sure that if it does happen, the family already understands where the money will come from, what happens to the surviving spouse and how the rest of the retirement plan will be affected.
That kind of preparation can turn what would otherwise be a financial emergency into an expense the retirement plan was designed to handle.
At Inside Edge Capital, long-term care is part of the broader retirement planning conversation we have with clients as they approach retirement. We can model a potential care event against the financial plan, identify whether a funding gap exists, and evaluate the different ways that gap could be addressed.
If you would like to understand what a long-term care event could mean for your own retirement plan, visit Inside Edge Capital to learn more.
