Seven in ten Americans over age 65 will need long-term care, yet most retirement plans overlook this critical expense that can rapidly deplete savings meant for inheritance and financial security.
At a Glance
- Approximately 70% of people aged 65 and older will require long-term care, with costs that can devastate retirement savings
- Medicare provides minimal long-term care coverage (up to 100 days in skilled nursing facilities), contrary to common misconceptions
- Women face disproportionate financial impact, often serving as caregivers and losing over $300,000 in lifetime earnings
- Hybrid insurance policies combining life insurance with long-term care benefits are gaining popularity as alternatives to traditional policies
- Early planning with a retirement advisor helps preserve choices, control, and financial security
The Hidden Crisis in Retirement Planning
Long-term care costs represent one of the most significant threats to retirement security that many Americans fail to address adequately. This oversight often stems from misconceptions about existing coverage through government programs. Many retirees mistakenly believe Medicare will cover extended care needs, when in reality, Medicare only covers up to 100 days in a skilled nursing facility under specific conditions. This gap in understanding leads to dangerous financial exposure during retirement years when individuals are most vulnerable.
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— MarcSchliefer, CFP®️RICP®️ , Wealth Advisor & CEO (@marcschliefer) December 8, 2023
The situation is worsening as long-term care costs continue to outpace inflation while caregiver shortages intensify nationwide. Family members often become default caregivers, facing not only emotional stress but substantial financial consequences. Women bear the brunt of this burden, frequently sacrificing career advancement and income to provide care for aging relatives.
“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.”
Understanding Your Long-Term Care Options
Long-term care encompasses a range of services beyond medical care, including assistance with daily activities like bathing, dressing, and meal preparation. These services can be provided in various settings – from home care to assisted living facilities, adult day care centers, nursing homes, or hospice facilities. The type and setting significantly impact costs, which vary considerably by geographic location and level of care required.
When Medicare coverage ends, retirees face difficult choices. They can self-fund care through savings, home equity, or reverse mortgages – potentially depleting assets intended for heirs. Alternatively, they might spend down assets to qualify for Medicaid, which does cover long-term care but has strict financial eligibility requirements often described as “forced poverty.” This approach requires surrendering control of assets and typically limits care options.
“I’m getting more and more calls from agents and advisors asking how they can help clients needing to fund long-term care” Jackie Slaughter
The Evolution of Long-Term Care Insurance
Traditional long-term care insurance has undergone significant transformation in recent years. While standalone policies were once standard, many insurers have shifted toward hybrid products that combine life insurance with long-term care benefits. These hybrid policies address a primary consumer concern with traditional coverage – the “use it or lose it” nature where premiums paid might yield no benefit if care is never needed.
Other funding strategies include leveraging life insurance cash value, long-term care annuities, and Health Savings Accounts (HSAs). Some employers now offer group long-term care insurance as part of benefits packages. Recent legislation, including provisions in the SECURE 2.0 Act, has created additional tax incentives for long-term care planning, allowing penalty-free distributions from qualified retirement accounts to pay for certain long-term care premiums.
“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” Jackie Slaughter
Working With a Retirement Advisor on Long-Term Care Planning
A qualified retirement advisor serves as a crucial ally in navigating the complexities of long-term care planning. These professionals help assess personal risk factors, such as family health history and retirement goals, to determine appropriate coverage levels. They can explain the nuances of different policy types, premium structures, and potential tax advantages while integrating long-term care planning into a comprehensive retirement strategy.
“When clients wait until a crisis hits, the options narrow, and the emotional toll spikes,” Ranck said. “Planning proactively means preserving choices and a sense of control.” Kaylee Ranck
Timing is critical in long-term care planning. Premium costs increase significantly with age, and health conditions that develop later in life may make qualifying for coverage difficult or impossible. Advisors can help determine the optimal time to secure coverage and recommend appropriate riders or benefit structures based on individual circumstances and financial resources.
“When people understand the risk of LTC costs to not only their finances but their lives and their family caregivers’ lives, they want to act. They see the real value in products that mitigate this risk” Jackie Slaughter
