Seventy percent of Americans over 65 will require long-term care at some point, yet most retirement plans fail to account for this potentially devastating financial burden.
At a Glance
- Long-term care costs can deplete retirement savings, with most Medicare beneficiaries mistakenly believing their healthcare needs are fully covered
- Women face disproportionate impact, often serving as caregivers and losing over $300,000 in lifetime earnings on average
- The long-term care crisis is worsening due to rising costs, caregiver shortages, and insufficient public funding
- Modern planning options include traditional LTC insurance, hybrid policies, life insurance with LTC riders, and tax-advantaged health savings accounts
- Early, proactive planning preserves choices, control, and financial security for yourself and your heirs
The Growing Long-Term Care Crisis
Long-term care (LTC) encompasses assistance with daily activities and skilled care for chronic illnesses, disabilities, or sudden health events. It can be provided at home, in assisted living facilities, adult day care centers, nursing homes, or hospice facilities. The financial impact of these services poses a significant threat to retirement security, with approximately 70% of people aged 65 and older requiring long-term care at some point. Despite this high probability, many Americans remain unprepared for these costs, often mistakenly believing Medicare will cover their needs.
The LTC crisis continues to worsen due to several factors. Costs have consistently outpaced inflation, with significant increases in assisted living, home health aide, and nursing home expenses. A growing caregiver shortage compounds the problem, characterized by high turnover rates and insufficient supply to meet increasing demand. Additionally, gaps in public funding leave many families without affordable care options, forcing difficult financial decisions.
“I’m getting more and more calls from agents and advisors asking how they can help clients needing to fund long-term care,” says Jackie Slaughter.
Common Misconceptions About Long-Term Care Coverage
A dangerous knowledge gap exists regarding long-term care coverage. Many Americans incorrectly assume Medicare will cover their long-term care needs, when in reality it only covers up to 100 days in a skilled nursing facility following a qualifying hospital stay. This misunderstanding leads to inadequate financial planning. While Medicaid does provide some long-term care coverage, its strict eligibility requirements often force individuals to spend down assets to qualify—a scenario sometimes described as “forced poverty.”
Health insurance typically offers minimal coverage for long-term care services, creating another potential financial blindspot. This lack of awareness about coverage limitations can leave retirees vulnerable to catastrophic expenses that quickly deplete savings meant to last throughout retirement. The financial impact extends beyond the care recipient to family members who often step in as unpaid caregivers, facing both emotional strain and financial consequences.
“Women are often the safety net, providing care, absorbing the cost, and sometimes sacrificing career opportunities,” states Kaylee Ranck. “Planning for long-term care helps redistribute that burden.”
Modern Long-Term Care Planning Options
The LTC insurance market has evolved significantly, offering more flexible solutions than in the past. Traditional long-term care insurance provides direct coverage for care expenses but typically requires lifelong premium payments with no cash value if unused. Hybrid policies have gained popularity by combining life insurance or annuities with long-term care benefits, offering more flexibility and guaranteed benefits regardless of whether long-term care is needed. These products address concerns about “use it or lose it” scenarios that deterred many from purchasing traditional policies.
Additional planning strategies include leveraging life insurance cash value, long-term care annuities, health savings accounts (HSAs), and employer group plans. The SECURE 2.0 Act now allows qualified retirement account distributions for LTC premiums without penalties, creating new planning opportunities. Self-funding options may involve dedicated savings, home equity lines, or reverse mortgages, though these approaches carry their own tax implications and risks of depleting assets intended for heirs.
“When clients wait until a crisis hits, the options narrow, and the emotional toll spikes,” Ranck advises. “Planning proactively means preserving choices and a sense of control.”
Creating a Personalized Long-Term Care Strategy
Effective long-term care planning requires a personalized approach based on individual health history, potential care needs, and financial goals. Early planning is especially important for those with family histories of debilitating conditions like Alzheimer’s disease. When developing a strategy, consider factors such as location (costs vary significantly by region), preferred care settings, family support availability, and inheritance goals. The right approach often combines multiple funding vehicles to provide maximum flexibility and protection.
“When people understand the risk of LTC costs to not only their finances but their lives and their family caregivers’ lives, they want to act. They see the real value in products that mitigate this risk,” explains Slaughter.
Retirement advisors play a crucial role in navigating these complex decisions, providing guidance on savings strategies, insurance options, inflation planning, income projections, and tax reduction strategies. While some may hesitate to discuss long-term care due to its unpleasant associations, proactive planning ultimately provides peace of mind and preserves financial independence. By addressing this critical component of retirement security, advisors help clients protect not only their own financial future but also spare their loved ones from difficult care decisions and financial burdens during already emotionally challenging times.
