How to Plan for Long-Term Care Costs in Retirement

Long-term care is one of the largest unplanned expenses in retirement — and one of the most commonly ignored. About 70% of people turning 65 today will need some form of long-term care during their lives, according to the U.S. Department of Health and Human Services. The costs are substantial, Medicare covers almost none of it, and the planning window for your best options closes earlier than most people expect. This guide covers what long-term care actually costs, what pays for it, and what decisions you need to make before you need the care.

What Long-Term Care Means

Long-term care is not medical care in the traditional sense. It is help with the activities of daily living — bathing, dressing, eating, using the toilet, getting in and out of bed, and managing continence — when a person can no longer do those things independently due to age, illness, or cognitive decline.

Care can be provided at home by a paid aide or family member, in an assisted living facility, in a memory care unit, or in a skilled nursing facility (nursing home). The level of care, the setting, and the duration all vary enormously. Some people need six months of care after a surgery and recover fully. Others spend five or ten years in assisted living or memory care with Alzheimer’s or Parkinson’s. Planning for an average obscures how wide that range is.

What Long-Term Care Costs

National median costs from the 2023 Genworth Cost of Care Survey:

Home health aide (44 hours/week): approximately $6,292/month
Assisted living facility (private room): approximately $5,350/month
Memory care unit: approximately $6,500–$9,000/month depending on region
Nursing home (semi-private room): approximately $8,669/month
Nursing home (private room): approximately $9,733/month

These are medians. Costs in high-cost metropolitan areas — New York, San Francisco, Boston — can run 50–100% higher. Costs in rural areas tend to be lower. The figures also assume today’s prices; at 4% annual inflation, costs double roughly every 18 years. Someone planning for care at age 80 needs to budget for prices that may be 25–50% higher than today.

What Medicare Does and Does Not Cover

Medicare covers short-term skilled nursing care after a qualifying hospital stay of at least three days. It pays 100% for the first 20 days in a skilled nursing facility, then requires a copay of $194.50 per day (2024) for days 21–100, then covers nothing beyond 100 days.

Medicare does not cover custodial care — help with daily activities — whether provided at home or in a facility. The large majority of long-term care costs fall into the custodial category. If your need is Alzheimer’s care, assisted living, or home aides on an ongoing basis rather than post-hospitalization skilled nursing, Medicare will not pay for it.

What Medicaid Covers (and the Requirements)

Medicaid does cover long-term care, including nursing home stays. It is the primary payer for nursing home care in the United States. But Medicaid is means-tested — you must have very limited assets and income to qualify.

In most states, an individual must have assets below $2,000 (excluding their primary home, one car, and some personal property) to qualify. A married couple has slightly different rules — the non-applicant spouse can typically retain a larger asset allowance called the Community Spouse Resource Allowance, which varies by state.

Medicaid planning — the strategy of deliberately restructuring assets to qualify for Medicaid — is complex, state-specific, and time-limited. Medicaid has a five-year lookback on asset transfers. Gifts or transfers made within five years of applying are subject to a penalty period during which Medicaid does not pay. Anyone considering Medicaid planning should work with an elder law attorney, not a financial advisor or general planner.

The Four Ways to Pay for Long-Term Care

1. Self-insure from savings

People with substantial assets — $2 million or more in liquid savings — often choose to self-insure. They accept the risk that long-term care costs could deplete a significant portion of the portfolio, and accept that risk in exchange for keeping the flexibility and control of their own money. Self-insurance makes the most sense when assets are large enough that even a five-year nursing home stay would not leave the surviving spouse destitute.

2. Traditional long-term care insurance

Traditional long-term care insurance (LTCI) works like other insurance: you pay annual premiums and the insurer pays for care if you need it. The policy typically specifies a daily or monthly benefit amount, a maximum benefit period (two years, five years, unlimited), an elimination period (the days you pay out of pocket before the policy kicks in), and an inflation adjustment rider.

The challenge with traditional LTCI is that premiums have become expensive, many insurers have exited the market, and the carriers that remain have substantial rate increase history. A policy purchased at 55 for $2,000/year can become $3,500/year or more by 70 if the insurer gets regulatory approval for an increase — and many have. The best time to buy traditional LTCI is in your mid-50s, when you are still likely to be insurable and premiums are lower. By your late 60s, many people are either uninsurable or facing premiums that are hard to justify.

3. Hybrid life/LTC or annuity/LTC policies

Hybrid policies combine a life insurance policy or annuity with a long-term care rider. If you need long-term care, the policy pays for it. If you die without needing care, the death benefit passes to your heirs. This structure appeals to people who dislike the use-it-or-lose-it nature of traditional LTCI — you (or your heirs) get value from the policy either way.

The trade-off is cost. Hybrid policies typically require a large lump-sum or multi-year premium commitment and deliver lower total long-term care coverage per dollar than traditional LTCI. They are more of an asset repositioning strategy than pure insurance. They also tend to be sold aggressively, so compare total coverage carefully before committing.

4. Family caregiving

The reality is that most long-term care is provided by unpaid family members — typically spouses, adult children, or both. Family caregiving is free to the recipient but carries significant costs to the caregiver: lost income from reduced work hours, physical and emotional stress, and career interruption. A plan that implicitly relies on a child to provide care without having a candid conversation about that expectation is not really a plan.

When to Start Planning

The decision window for long-term care insurance is roughly ages 55–65. Before 55, premiums are low but the need feels remote and policies hold a long time. After 65, premiums are meaningfully higher and some applicants are denied coverage due to health conditions. A major health event — diabetes, heart disease, a cancer history — can make you uninsurable for traditional LTCI, which is why waiting until a health scare to think about it often closes the door.

Even if you decide not to buy insurance, build a plan. Know what the facilities in your area cost today. Designate who will be your care coordinator if you need help. Have the conversation with your spouse and adult children about your preferences — home care, assisted living, moving in with family — before a health crisis forces the decision.

What to Do Now

Estimate the cost of care in your area using the Genworth Cost of Care calculator or a similar tool
Assess your financial capacity to self-insure — what would three to five years of care at $7,000/month do to your retirement plan?
If you are 55–65 and in good health, get quotes on traditional LTCI and hybrid policies from multiple carriers
If you are considering Medicaid planning, consult an elder law attorney — not a financial planner — about your state’s rules and the five-year lookback
Have a direct conversation with family members about expectations, preferences, and who will coordinate care if needed

How to Plan for Long-Term Care Costs

What Long-Term Care Means

What Long-Term Care Costs

What Medicare Does and Does Not Cover

What Medicaid Covers (and the Requirements)