Key Takeaways
- Roughly 70% of people turning 65 today will need some form of long-term care during their lifetime.
- Medicare does not cover custodial care — the type most people actually need — leaving a significant funding gap.
- Planning early (ages 55–65) gives you the most options and the lowest premiums for long-term care insurance.
The Reality of Long-Term Care
Long-term care is one of the largest and least anticipated expenses in retirement. According to the U.S. Department of Health and Human Services, approximately 70% of Americans turning 65 today will need some form of long-term care before they die. The average duration of care is roughly three years, though many individuals require care for significantly longer — and the costs add up quickly.
Long-term care encompasses a broad range of services: help with activities of daily living such as bathing, dressing, eating, and transferring; skilled nursing care; memory care for those with Alzheimer’s or dementia; and rehabilitative therapies. It can be delivered in a nursing home, an assisted living facility, an adult day care center, or in your own home by a professional caregiver.
What makes long-term care so financially dangerous is not just its cost but its unpredictability. You may never need it. Or you may need five or more years of intensive care. This uncertainty makes planning essential — because the consequences of being unprepared can devastate a retirement portfolio and place an enormous burden on your family.
What Medicare Does — and Does Not — Cover
One of the most common and costly misconceptions in retirement planning is the belief that Medicare will pay for long-term care. It will not — at least not in the way most people need.
Medicare Part A covers up to 100 days of skilled nursing facility care following a qualifying three-day hospital stay. Days 1 through 20 are fully covered. Days 21 through 100 require a daily coinsurance payment of $209.50 (2025 figure). After day 100, Medicare coverage ends entirely. Critically, this coverage only applies to skilled nursing care — care that requires the expertise of licensed medical professionals such as nurses or therapists.
What Medicare does not cover is custodial care: the assistance with daily living activities that constitutes the vast majority of long-term care. If you need help bathing, dressing, eating, or managing medications — but do not require skilled medical intervention — Medicare will not pay for that care, regardless of how long you need it or where you receive it.
Current Long-Term Care Costs (2026)
The cost of long-term care varies by region, type of care, and level of assistance required. The following table shows national median costs for common types of care.
| Type of Care | Description | Annual Cost (National Median) |
|---|---|---|
| Nursing Home (Shared Room) | 24-hour skilled nursing and custodial care in a facility | ~$119,000/year |
| Nursing Home (Private Room) | Same as above with a private room | ~$133,000/year |
| Assisted Living Facility | Residential facility with help for daily activities, meals, and social programs | ~$70,800/year |
| Home Health Aide | In-home personal care assistance (44 hrs/week) | ~$75,500/year |
| Adult Day Health Care | Daytime supervision, meals, and activities at a center (5 days/week) | ~$22,400/year |
These figures represent national medians. In metropolitan areas and states with higher costs of living, you may pay 20% to 50% more. And these costs are not static — they have been rising at approximately 3% to 5% per year, outpacing general inflation.
Projected Cost Growth
At a 3% annual inflation rate, the cost of long-term care rises dramatically over time. The chart below illustrates how today’s costs translate into future expenses for someone who may not need care for 10 or 20 years.
A three-year nursing home stay that would cost roughly $357,000 today could cost over $480,000 in 10 years and nearly $645,000 in 20 years. These are staggering sums that can quickly deplete even a well-funded retirement portfolio.
How to Fund Long-Term Care
There are several strategies for funding potential long-term care costs. Each has distinct advantages and trade-offs, and the right choice depends on your financial situation, health, age, and risk tolerance.
| Approach | How It Works | Pros | Cons | Ideal For |
|---|---|---|---|---|
| Traditional LTC Insurance | Pay annual premiums for a policy that covers a daily benefit amount for a set period | Transfers risk to insurer; significant leverage on premiums paid | Premiums can increase over time; “use it or lose it” if you never need care | Those in their 50s–early 60s with moderate assets who want to protect savings |
| Hybrid Life/LTC Policy | Combines life insurance with LTC benefits; if you need care, LTC rider pays; if not, death benefit goes to heirs | No “use it or lose it” concern; premiums typically fixed; guarantees a payout | Requires larger upfront premium or lump sum; less LTC leverage than standalone | Those who want guaranteed value whether or not they need care |
| Self-Insuring | Earmark a portion of your portfolio specifically to cover potential LTC costs | No premiums; full control of assets; if care is never needed, funds remain yours | Requires substantial assets ($500K+ earmarked); exposes portfolio to extended care risk | High-net-worth individuals with sufficient assets to absorb multi-year care costs |
| Medicaid (Last Resort) | Government program that covers LTC for those who have exhausted nearly all assets | Covers full cost of nursing home care once eligible | Requires spending down assets to near-poverty levels; limited facility choices | Those with very limited resources; not a planning strategy but a safety net |
When to Buy LTC Insurance
The optimal window for purchasing long-term care insurance is typically between ages 55 and 65. At this age, premiums are still relatively affordable, and you are more likely to qualify medically. Waiting too long introduces two risks: significantly higher premiums and the possibility of being declined due to health conditions that develop with age.
Health underwriting for LTC insurance is more rigorous than many people expect. Conditions such as diabetes, heart disease, Parkinson’s, early cognitive decline, or even a history of certain medications can result in higher premiums or outright denial. This is one of the strongest arguments for planning early — your health today may not be your health in five years.
Hybrid policies — which combine a life insurance policy with a long-term care rider — have grown significantly in popularity. If you need long-term care, the policy accelerates the death benefit to pay for care. If you never need care, your beneficiaries receive the full death benefit. Some hybrid policies also allow you to access a return of premium if you change your mind. The trade-off is that hybrid policies typically require a larger premium commitment (sometimes a single lump-sum payment of $50,000 to $200,000), and the LTC benefit may provide less coverage per premium dollar than a standalone policy. However, the certainty that your money is not “wasted” makes hybrid policies appealing to many retirees and pre-retirees.
Medicaid: Understanding the Spend-Down
Medicaid is a needs-based program, and qualifying for Medicaid-funded long-term care requires spending down your assets to very low levels — typically $2,000 or less in countable assets for a single individual in most states. Your home, one vehicle, and certain other assets may be exempt, but the vast majority of your savings, investments, and retirement accounts must be depleted before Medicaid begins covering care. Furthermore, Medicaid has a five-year “look-back” period: any assets you transferred or gifted during the five years before applying may result in a penalty period of ineligibility. Planning for Medicaid eligibility should involve an elder law attorney and should begin well in advance. Relying on Medicaid as your primary LTC strategy means accepting a dramatic reduction in your standard of living and your ability to leave assets to your family.
The Role of a Financial Plan in LTC Planning
Long-term care planning is not a standalone exercise — it is a critical component of your overall financial plan. A comprehensive plan should model various scenarios: what happens to your retirement income and portfolio if you need three years of nursing home care at age 78? What if your spouse needs care at the same time? What if care is needed for five years instead of three?
A financial advisor can help you stress-test your plan against these scenarios and determine the most cost-effective strategy for your situation. For some, that means purchasing a hybrid policy. For others, it means earmarking a dedicated pool of assets for potential care costs. For many, it involves a combination of approaches — perhaps a modest LTC policy to cover the first two years of care, combined with a self-insurance strategy for any costs beyond that.
The worst approach is no approach at all. Long-term care costs have the potential to unravel decades of careful saving and investing. Addressing this risk proactively, while you are healthy and have options, is one of the most important steps you can take to protect your retirement.
This article is for informational purposes only and does not constitute investment advice. All information should be discussed with a qualified financial advisor before implementation.
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