When imagining the perfect retirement, most people dream about travel, hobbies, or time spent with loved ones. That’s certainly more fun than planning for long-term care. However, according to the U.S. Department of Health and Human Services, roughly 56% of adults aged 65 and older will need some form of long-term care during their lifetime.

To avoid putting undue pressure on your family or running into avoidable financial challenges, advance planning is key. Here, we discuss how to get started, what it costs, and the steps you can take to prepare, no matter your age.

What is Long-Term Care?

Long-term care refers to a range of services designed to meet your health and personal care needs over a prolonged period. It becomes necessary when someone can no longer perform activities of daily living (ADLs) such as bathing, dressing, meal preparation, or moving from one place to another. There are several types of long-term care facilities to consider, depending on the level of care required:

• Home care. Not surprisingly, 70% of adults would prefer to receive long-term care in the comfort of their own homes. Home care typically involves hiring professional caregivers and/or receiving assistance from family members.
• Assisted living facilities. These facilities offer a middle ground for those who need some help with daily activities but do not require 24/7 medical attention. Residents usually live in a private or semi-private apartment while receiving meals, assistance with ADLs, and access to recreational and social activities.
• Nursing homes. For those needing a higher level of care, nursing homes provide round-the-clock medical care. This option is often necessary for people with serious health conditions such as dementia or Alzheimer's disease.

The Cost of Long-Term Care

While the cost of long-term care varies based on where you live and the level of care required, it can potentially be significant. According to the Genworth 2023 Cost of Care Survey:

• The median annual cost for a home health aide is about $75,500.
•  Assisted living facilities have a median annual cost of approximately $64,200.
• Nursing home care costs around $116,800 per year for a private room and $104,000 for a semi-private room

Notably, these costs are only set to increase. While year-over-year costs rose between 1% and 10% in 2023, the 20th year of Genworth’s survey, they were up almost 19% between 2021 and 2023. This makes it even more important to plan ahead.

Planning for Long-Term Care Needs

Planning for long-term care is not something you should wait until retirement to think about. The earlier you begin, the better you can prepare for the costs and emotional decisions involved. Here are some key steps you can take:

• Identify your future needs. Start by considering your current health and family history. Are there genetic conditions that might increase your chances of needing long-term care? By assessing your lifestyle and health risks, you can estimate the level of care you may require in the future.
•  Involve your family. It’s crucial to have open and honest discussions with your family about your potential long-term care needs. Although you may prefer to receive care from a family member, that is not always feasible. For instance, if your children are caring for their own children or your spouse is frail or disabled, the burden could be overwhelming. Discussing these concerns can help set expectations and prevent emotional strain later on.
•  Review your finances. Considering the costs associated with long-term care, it’s important to consider the financial resources available to you—from personal savings to social support. Keep in mind too, that receiving care from a family member is not truly “free.” Personal expenses related to home care can average $7,000 or more annually, so think through how you plan to compensate your caregivers as well.
• Make legal preparations. Many people who require long-term care may find themselves unable to make decisions around their finances or health care. To make sure your wishes are followed in this event, it’s important to prepare legal documents such as a power of attorney, living will, and health directives in advance.

Beyond smoothing the way for family members during a challenging time, this type of planning can help you remain independent for longer and potentially save you money over time.

How to Pay for Long-Term Care

Without a clear plan, paying for long-term care can present a challenge. Many people are surprised to learn that Medicare does not cover long-term care costs, except for limited short-term stays following hospitalization. While Medicaid may be an option, qualifying for coverage can be difficult as it is income-based and often requires applicants to spend down their assets before becoming eligible.

Given these limitations, you may choose to self-fund your long-term care costs through personal savings and assets. If you plan to go this route, it’s important to start setting aside funds early to cover the high costs of care later in life.

Another way to bridge the gap is through long-term care insurance. These policies help cover the cost of care and can provide peace of mind, knowing that you won’t deplete your savings. It’s important to realize that long-term care insurance is different from the long-term disability insurance you may receive through an employer. Similarly, some people may confuse it for critical illness insurance. To understand the differences, let’s take a quick look at how long-term care insurance works.

Understanding Long-Term Care Insurance

Long-term care insurance is a specific type of policy designed to cover some of your home care, assisted living, or nursing home costs if you suffer from a cognitive impairment such as dementia or if your doctor confirms that you can no longer perform two to three ADLs. 

There are two main types of long-term care insurance policies:

• Traditional policies pay for long-term care services when you need them, with benefits generally kicking in after a waiting period (often 90 days). While this tends to be the most affordable type of long-term care insurance, with premiums that may be tax deductible, these types of policies do not accumulate cash value. Additionally, premiums on these policies can be increased in accordance with state law, which could result in higher costs or the loss of preferred insurance riders, such as inflation protection.
• Hybrid policies combine long-term care coverage with life insurance or an annuity. While somewhat more costly than traditional policies, premiums on these policies are typically fixed. Beyond directly providing long-term care benefits, along with a death benefit for your heirs, these policies also accumulate a cash value that you could potentially surrender to cover additional long-term care costs.

There are also two ways in which these policies generally pay out benefits. Reimbursement policies require you to pay for your own long-term care expenses and submit receipts to receive reimbursement. While this policy option may be less costly, it may also mean waiting to be reimbursed for qualified expenses.

Conversely, indemnity policies tend to cost more but will cover the costs of long-term care directly, without requiring you to submit receipts. You (or your caregiver) will still need to track expenses and payments for tax purposes.

In deciding when to buy long-term care insurance, keep in mind that earlier tends to be better. If you purchase a policy in your 50s or 60s, you are more likely to be in good health and eligible for full coverage. Additionally, premiums will likely be more affordable compared to buying a policy later in life.

Your Life, Your Care: Long-Term Care Needs at Every Stage

While everyone’s long-term care needs are unique, there are certain steps you can take during each decade of life to make sure your needs are covered:

In Your 40s

Now is the time to start thinking about long-term care. Begin by reviewing your investment portfolio and allocating funds towards your eventual long-term care needs, even if it’s just a small amount. Establishing good saving habits early can give you the flexibility to cover future care costs. Your financial advisor can help.

In Your 50s

This is the perfect time to purchase long-term care insurance. The older you enroll, the higher your annual premiums will be. By starting now, you can potentially lock in lower premiums and set up coverage before any potential health issues arise.

In Your 60s

As you enter your 60s, it’s important to update your legal documents, including your health care directives, living wills, and powers of attorney. It’s also an ideal time to discuss your wishes around long-term care with your family. As you approach retirement, be sure to finetune your financial plan as well to make sure you can enjoy the lifestyle you choose while still setting money aside to fund future health and long-term care needs.

In Your 70s

During this decade, you may want to safety-proof your home to prevent falls and accidents, with renovations that may include walk-in showers, wheelchair ramps, and/or wider doorways. It’s also a good time to research retirement communities and assisted living facilities in the geographies of your choice and consider applying if wait lists are long.

The Bottom Line

Planning for long-term care may seem overwhelming, but it's a critical part of aging well. By understanding your care needs, exploring your options, and preparing financially, you can get ready for whatever comes your way. To learn more about how to start the process and evaluate your financial readiness, reach out to your financial advisor.

Advisory services offered through Wealth Enhancement Advisory Services, LLC, a registered investment advisor and affiliate of Wealth Enhancement Group®. Wealth Enhancement Group is a registered trademark of Wealth Enhancement Group, LLC.

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