Why Long-Term Care Planning is Important for Your Retirement

Many people underestimate the likelihood of needing long-term care and fail to adequately plan for associated costs in retirement. However, statistics show that a majority of seniors will require some form of extended care. This makes incorporating long-term care planning an essential piece of your overall retirement preparation. Read on to understand what’s at stake and why proactively planning for potential long-term care needs should be a priority.

The Likelihood of Needing Care is High

According to the U.S. Department of Health and Human Services, 52% of people over 65 will require some type of long-term care during their lifetime. Many conditions like dementia, Parkinson’s, stroke, and chronic illnesses necessitate extended custodial, medical, or supervision services. With 10,000 baby boomers turning 65 every day, demand continues rising.

The odds are high that you or your spouse will need assistance with daily living for an extended period. Failing to account for this likelihood in retirement planning leaves you financially exposed. Making long-term care part of your retirement preparation simply makes sense given the statistics.

Care Costs are Expensive and Rising

Long-term care is expensive, especially round-the-clock skilled nursing care. Costs vary significantly by state, ranging from over $50,000 to nearly $150,000 annually for a private room in a nursing facility. Assisted living communities charge $30,000-$60,000 per year. In-home care runs $20 per hour or more.

These costs are steadily rising each year at a pace that outpaces inflation. By delaying planning until you actually need care, you lose years of potential savings and investment growth. Long-term care expenses can quickly deplete retirement savings and assets.

Medicare Provides Little Coverage

Why Long-Term Care Planning is Important for Your Retirement

Many seniors are surprised to learn that traditional Medicare provides extremely limited long-term care coverage. Medicare only pays for skilled nursing care for up to 100 days following a hospital stay. After that, you pay the full daily rate out-of-pocket if care is still needed.

Medicare does not cover custodial care for daily living assistance with bathing, eating, dressing, etc. Relying on Medicare to handle your long-term care needs is wishful thinking. You need private insurance or funds set aside.

Care Needs May Last for Years

For elderly individuals who suffer strokes, dementia, or conditions causing physical impairment, ongoing care is often necessary for years. Roughly 35% of seniors end up needing care for more than two years once they initially require assistance. Some need perpetual care for the rest of their lives.

When planning finances for retirement, you must account for the reality that long-term care needs could last an extended time. The bills add up quickly when paying thousands per month for multiple years. Long-term planning helps fund multi-year costs.

Care Needs May Impact Your Spouse Too

When one spouse requires extended care, it affects the other financially and logistically. Even if care costs are covered, the healthy spouse loses household contributions and companionship. They may need to adjust living arrangements, handle transportation, and make difficult medical decisions.

Your spouse could also end up needing long-term care down the road after you’ve used joint resources on your own care. This doubles the odds and costs. Plan for how extended care for either spouse will impact retirement finances.

Why Long-Term Care Planning is Important for Your Retirement

Paying Out-of-Pocket Can Drain Your Nest Egg Quickly

Very few seniors can afford to pay long-term care costs entirely out of pocket. Just one year of nursing home care at $100,000 could decimate a retirement nest egg. Relying on personal savings without sufficient assets earmarked for care needs is extremely risky.

Self-funding long-term care often means liquidating retirement investment accounts quickly and depleting the principal. This leaves you without income-generating assets and savings to live on. Extended care costs warrant their own designated financial strategy.

Care Services Allow Seniors to Age with Dignity

Perhaps most importantly, obtaining necessary care services allows seniors to age gracefully with dignity. Having resources to access quality care enables you or your spouse to receive needed assistance with daily activities while remaining comfortable and socially engaged.

Planning ahead, rather than waiting for a crisis, helps ensure care needs get met without financial stress. Seeking care should focus on quality of life rather than cost worries.

Long-Term Care Insurance Offers a Solution

Purchasing long-term care insurance provides guaranteed coverage in case extended care becomes necessary. Policies cover varying benefit periods for in-home care, assisted living, adult daycare, respite care, equipment, and more. Couples enjoy shared benefits and premium discounts.

Long-term care insurance safeguards your retirement assets and peace of mind. Some “hybrid” policies include life insurance and annuity benefits that remain if never used for care. The right policy provides invaluable protection.


Failing to plan for long-term care needs and costs in retirement is a ticking time bomb. Whether needs arise for you, your spouse, or even your parents, extended care has major multi-year financial implications that must be addressed proactively. Incorporate long-term care planning into your overall retirement strategy.

FAQs About Long-Term Care Planning

What percentage of retirement assets should be allocated to fund potential long-term care?

It’s recommended to earmark 15-20% of your overall retirement portfolio to fund any future long-term care needs. This money would be invested in stable assets available to liquidate if necessary.

What is the best age to purchase long-term care insurance?

The ideal age is mid-50s to early 60s when premiums are still affordable but care needs are on the foreseeable horizon. Coverage gets very expensive after age 70. Purchase too young and you pay premiums for years never used.

Can I self-insure for long-term care needs instead of buying insurance?

Self-insuring requires having sufficient assets to cover several years of long-term care costs out-of-pocket if necessary. For most retirees, this would mean savings of several hundred thousand dollars available to liquidate.

What types of care are covered by long-term care insurance?

Quality policies cover care such as nursing facilities, assisted living, adult daycare, in-home personal care, respite care, hospice, and home health care. Look for coverage that includes cognitive conditions like dementia too.

Should I expect my children to handle my long-term care?

No, adult children should not be relied upon as a care plan. Most cannot afford thousands per month in care costs for parents. And few have room for parents to live with them indefinitely. Long-term care planning should not depend on children.

A Ahmad
A Ahmad

A Ahmad, a certified financial planner, Retirement Step was created to share over two decades of retirement planning experience with readers looking to take control of their financial futures.

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