There is a conversation I have to initiate in almost every client relationship. Not because clients do not care about the topic, but because it is uncomfortable. It involves imagining a future where you or your spouse can no longer take care of yourselves independently, and it requires making financial decisions now based on a scenario most people would rather not think about.
I am talking about long-term care.
The Numbers Are Hard to Ignore
According to the U.S. Department of Health and Human Services, more than half of Americans turning 65 today will need some form of long-term care services during their lifetime. The average duration of care is about three years. For women, it is closer to four.
In North Carolina, the costs are significant. A private room in a nursing facility averages over $90,000 per year. A semi-private room runs around $80,000. Assisted living facilities average $48,000 to $60,000 per year. Home health aide services (40 hours per week) average $50,000 or more annually.
These are not hypothetical numbers. They are the current market rates in our region. And they are rising faster than general inflation.
What Medicare Does (and Does Not) Cover
Medicare does not cover long-term custodial care.
Medicare will pay for short-term skilled nursing facility care after a qualifying hospital stay of at least three days. It covers the first 20 days in full and days 21 through 100 with a significant daily copay. After 100 days, Medicare coverage ends entirely.
Medicare does not cover the ongoing custodial care that most people actually need when they can no longer perform activities of daily living on their own. That is the care that costs $90,000 per year. And it is entirely on you to fund it.
Medicaid does cover long-term care, but only after you have spent down nearly all of your assets. For most people who have worked and saved their entire lives, relying on Medicaid means giving up everything they built before getting help.
The Planning Options
There are three primary approaches to long-term care planning, and the right one depends on your assets, your health, and your priorities.
Traditional Long-Term Care Insurance: Pays a daily or monthly benefit for qualifying care expenses. Premiums are paid annually, and the policy pays out when you meet the benefit triggers. The advantages are relatively low cost for the coverage provided, and premiums may be partially tax-deductible. The disadvantages are that premiums can increase over time and if you never need care, you receive no benefit.
Hybrid Life/LTC Policies: These combine a life insurance or annuity chassis with a long-term care rider. You fund the policy with a lump sum or a series of premiums, and the policy provides a pool of money that can be used for either long-term care or, if you never need care, passes as a death benefit to your heirs. Premiums are typically guaranteed not to increase. Hybrid policies have become the most popular LTC planning tool for affluent retirees.
Self-Insurance: For individuals with substantial assets, setting aside a dedicated pool of assets to fund potential LTC costs is a legitimate strategy. A three-year nursing home stay at $90,000 per year is $270,000. A five-year stay is $450,000. For a couple, the risk doubles. Self-insurance works if you have the assets to absorb these costs without derailing your retirement plan.
When to Plan
The best time to address long-term care planning is in your 50s or early 60s, before health issues make insurance harder to obtain or more expensive. Waiting until you need it is not an option. LTC insurance is medically underwritten, and a diagnosis of Parkinson's, dementia, or other conditions will disqualify you.
The Bottom Line
Long-term care is not a pleasant topic. But it is a real risk, and one that can devastate a retirement plan that was otherwise well-constructed. The right strategy depends on your specific situation, but the worst strategy is to ignore it.
Book a complimentary retirement brainstorm session and let's make sure your retirement plan includes a realistic plan for this risk.
Jason Rindskopf is the founder of Two Waters Wealth Management and creator of the SMART Retirement Blueprint®. He works with high-achieving professionals and couples in the Charlotte, NC area who are within 10 years of retirement or recently retired.