The often-overlooked reality of long-term care costs threatens to devastate retirement savings for millions of Americans, yet most remain dangerously unprepared for this financial burden.
At a Glance
- Approximately 70% of people aged 65+ will require long-term care, with costs that have consistently outpaced inflation
- Medicare provides limited coverage for long-term care, covering only up to 100 days in a skilled nursing facility
- Women face disproportionate financial impacts, often serving as caregivers and losing over $300,000 in lifetime earnings
- Strategic options include traditional long-term care insurance, hybrid policies, life insurance with LTC riders, and using HSAs
- Early planning with a retirement advisor helps preserve assets for heirs and maintains control over care decisions
The Hidden Retirement Crisis
Long-term care costs represent one of the most significant threats to retirement security that most Americans fail to adequately address. The statistics paint a sobering picture: about 70% of people aged 65 and older will require some form of long-term care during their lifetime. Despite this high probability, many retirees mistakenly believe that Medicare will cover these expenses, leading to dangerous gaps in their financial planning. This misunderstanding can lead to rapid depletion of retirement savings that were intended to last decades or be passed to heirs.
The financial impact of long-term care is worsening due to several converging factors. Costs have consistently outpaced general inflation, with significant increases across all care settings including assisted living facilities, home health aide services, and nursing homes. Simultaneously, the industry faces a severe caregiver shortage, with high turnover rates and insufficient personnel to meet growing demand. These challenges create a perfect storm for future retirees who haven’t properly prepared.
“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.
Understanding Care Options and Costs
Long-term care encompasses a wide range of services, from assistance with daily activities like bathing and dressing to skilled nursing care for chronic conditions or sudden health events. This care can be provided in various settings including the home, assisted living facilities, adult day care centers, nursing homes, or hospice facilities. The type and setting dramatically impact costs, which also vary significantly by geographic location. These expenses generally continue rising faster than overall inflation.
Many people are surprised to learn that traditional health insurance and Medicare provide very limited coverage for long-term care needs. Medicare typically covers only up to 100 days in a skilled nursing facility following a qualifying hospital stay. Medicaid does cover some long-term care services but has stringent eligibility requirements that often force individuals to deplete most of their assets—a situation sometimes referred to as “forced poverty”—before qualifying for benefits.
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— MarcSchliefer, CFP®️RICP®️ , Wealth Advisor & CEO (@marcschliefer) December 8, 2023
The Disproportionate Impact on Women
Women bear a disproportionate burden in the long-term care crisis. They typically live longer than men and are more likely to require care later in life. Additionally, women most often serve as unpaid caregivers for family members, resulting in significant financial consequences. The average female caregiver loses more than $300,000 in lifetime earnings due to reduced work hours, career interruptions, or early retirement to provide care for loved ones. This creates a double financial jeopardy for women, who must plan for both potential caregiving responsibilities and their own future care needs.
“Women are often the safety net, providing care, absorbing the cost, and sometimes sacrificing career opportunities,” Kaylee Ranck said. “Planning for long-term care helps redistribute that burden.”
This reality makes proactive long-term care planning particularly crucial for women. Without adequate preparation, women may find themselves financially vulnerable in retirement after years of caregiving responsibilities have diminished their savings and earning potential. Addressing these gender-specific concerns should be a priority when developing long-term care strategies with professional advisors.
Strategic Planning Options
Several funding strategies can help mitigate the financial impact of long-term care needs. Traditional long-term care insurance policies specifically cover long-term care expenses but have faced challenges with premium increases. Hybrid policies, which combine life insurance or annuities with long-term care benefits, have gained popularity as they provide benefits whether long-term care is needed or not. Life insurance policies with long-term care riders offer another alternative, providing flexibility in how benefits are used.
“But it’s a whole new world today. The LTC market has matured, clients are asking for LTC coverage, and there are ways to avoid the bad experience of rejection in underwriting,” says Jackie Slaughter.
Health Savings Accounts (HSAs) offer tax advantages for qualified medical expenses, including certain long-term care costs and premiums. The SECURE 2.0 Act provides additional flexibility, allowing qualified retirement account distributions for long-term care premiums without penalties. For those who prefer to self-fund, options include dedicated savings, home equity lines, or reverse mortgages, though each carries different tax implications and risks. Early planning is crucial, particularly for those with family histories of conditions that might require extended care.
The Value of Professional Guidance
Given the complexity of long-term care planning, working with a qualified retirement advisor can provide significant benefits. These professionals help evaluate personal health history, potential care needs, and financial goals to develop comprehensive strategies. They can explain complicated policy details, provide clarity on how insurance options protect assets, and ensure decisions align with overall retirement objectives. Without expert guidance, many consumers remain unaware of the full range of planning options available.
“When clients wait until a crisis hits, the options narrow, and the emotional toll spikes,” Kaylee Ranck said. “Planning proactively means preserving choices and a sense of control.”
Ultimately, the goal of long-term care planning is not just financial protection but maintaining dignity and choice during vulnerable periods of life. Proactive planning preserves options and autonomy, avoiding scenarios where limited choices must be made during health crises. A thoughtful strategy developed with professional guidance can help ensure that retirement years remain secure regardless of health challenges that may arise.
