Protection Strategy

Long-Term Care Planning: Protecting Your Retirement From Care Costs

The Risk That Can Devastate Decades of Savings

Learn long-term care planning strategies including hybrid insurance, asset-based solutions, and self-insurance to protect your retirement savings from catastrophic care costs.

Schedule a Strategy Session Explore Calculators

70%

Chance of Needing LTC After Age 65

$9-11K/mo

Average Nursing Home Cost

3 Years

Average LTC Need (Women)

100 Days

Maximum Medicare Skilled Nursing Coverage

Quick Answer

70% of those turning 65 will need some form of long-term care during their lifetime
Medicare does NOT cover custodial care - only short-term skilled nursing after hospitalization
Hybrid LTC policies combine life insurance with LTC benefits - use it or your heirs receive death benefit
The best time to get coverage is in your 50s while still healthy and premiums are affordable
Self-insurance only works with $3M+ in assets beyond basic retirement needs

The Reality

Understanding Long-Term Care Risk

The 70% Probability Reality

About 70% of people turning 65 will need some form of long-term care during their lifetime. The average need is 3 years for women and 2.2 years for men. This is not a remote risk - it is a planning necessity. Ignoring LTC is not a strategy; it is a gamble with your family legacy.

Costs That Can Devastate Savings

Nursing home costs average $9,000-$11,000/month nationally ($108K-$132K/year). Home health aides average $5,000-$6,000/month. A 3-year nursing home stay can cost $300K-$400K. Without planning, this expense can consume decades of savings meant for spouse or heirs.

Medicare Does NOT Cover Long-Term Care

Medicare only covers short-term skilled nursing (up to 100 days) after hospitalization. It does NOT cover custodial care - help with daily activities like bathing, dressing, eating. Most LTC is custodial. Do not assume Medicare will cover you; it will not.

Hybrid Policies: Use It or Leave It

Modern hybrid LTC policies combine life insurance with LTC benefits. If you need care, the policy pays for it. If you never need care, your heirs receive the death benefit. No use-it-or-lose-it problem of traditional LTC insurance. Premiums are typically guaranteed.

Solutions

Planning Strategies

Hybrid Life/LTC Insurance

Purchase a hybrid policy that combines permanent life insurance with LTC riders. Pay single premium or limited payments. If you need care, policy accelerates death benefit to pay for LTC. If you die without needing care, full death benefit goes to beneficiaries. Some policies offer return of premium if you change your mind.

Best for: Those with liquid assets who want LTC protection without use-it-or-lose-it risk.

Example:

Client deposits $150,000 into hybrid policy at age 60. Policy provides $450,000 LTC benefit pool (3:1 leverage). If needed, $7,500/month available for care for 5 years. If never used, $200,000 death benefit to heirs. If client changes mind at year 5, can receive $150,000 back (return of premium rider).

Asset-Based LTC with Annuity

Reposition low-yielding assets into an annuity with LTC multiplier. Annuity provides income and legacy value. LTC rider multiplies value (often 2x-3x) if you need care. Tax-advantaged LTC benefits under IRC 7702B. Can be funded with non-qualified assets, providing tax-efficient LTC.

Best for: Those with underperforming assets seeking better returns plus LTC protection.

Example:

$200,000 CD earning 1% repositioned to annuity with LTC rider. Annuity grows tax-deferred. If LTC needed, $600,000 available for care (3x multiplier). Benefits paid tax-free for qualified LTC expenses. If not needed, account value passes to heirs. CD was earning less and had no LTC protection.

Self-Insurance with Earmarked Assets

For affluent retirees, self-insuring may be appropriate. Earmark specific assets for potential LTC needs - often 2-3 years of care costs ($300K-$500K). Invest conservatively for liquidity. Accept the risk while protecting core retirement income. This only works if you have sufficient assets beyond retirement needs.

Best for: Affluent retirees with $3M+ in assets who can absorb LTC costs without affecting lifestyle.

Example:

Couple with $4M portfolio, $150K/year expenses. Earmark $500K in conservative allocation for LTC. Remaining $3.5M covers retirement needs with buffer. If LTC needed, use earmarked funds first. If never needed, funds remain part of estate. Self-insurance appropriate given asset level.

Avoid These Pitfalls

Common Mistakes

Waiting Too Long to Get Coverage

LTC insurance gets more expensive with age and health declines. Many applicants in their 60s are declined for health reasons. The best time to apply is mid-50s when you are still healthy and premiums are reasonable. Waiting until you need it means you cannot get it.

Assuming Family Will Provide Care

Adult children often cannot provide care - they have jobs, families, and may live far away. Caregiving strains relationships and can harm the caregiver health and finances. Having a plan that does not rely on family protects both your care quality and family relationships.

Ignoring Inflation in Care Costs

LTC costs have risen faster than general inflation for decades. A policy that covers $5,000/month today may be inadequate in 20 years. Choose policies with inflation protection (compound preferred over simple). The extra premium is worth it for policies purchased before age 65.

Questions

Common Questions

Here are the most common questions we receive about this topic.

Ask Your Question

Traditional LTC insurance is pure risk transfer - you pay premiums and receive benefits if you need care, but lose premiums if you do not. Hybrid policies combine LTC with life insurance or annuity - if you need care, it pays for care; if not, you get a death benefit or account value. Hybrid eliminates use-it-or-lose-it concern.

Ideally in your 50s when you are healthy and premiums are affordable. By 60s, premiums increase significantly and health issues may disqualify you. By 70s, individual coverage is often unavailable or prohibitively expensive. Start planning early, even if purchase waits a few years.

Medicaid covers nursing home care for those who have exhausted assets (typically under $2,000 for individual). You cannot give away assets within 5-year lookback period to qualify. Medicaid planning exists but requires careful legal structuring. It should not be primary strategy for those with assets to protect.

Calculate local care costs (varies significantly by region) times expected need duration (2-4 years average). A policy covering $6,000-$8,000/month with 3-4 year benefit period addresses most scenarios. Some coverage is better than none - even partial coverage protects significant assets.

Tax-qualified LTC premiums are deductible as medical expenses up to age-based limits (higher limits for older policyholders). Must exceed 7.5% AGI threshold with other medical expenses. Self-employed can deduct above-the-line. Benefits from tax-qualified policies are generally tax-free.

Ready to Address Long-Term Care Risk?

Long-term care planning is essential to protect your retirement savings and family. Let us help you evaluate options that fit your situation and budget.

Schedule Your Strategy Session Explore Related Strategies