We're living longer—that's the good news. The downside? A longer life comes with a new challenge: planning for the long-term care we may need down the road. And it isn't cheap. It's estimated that 20% of Americans turning 65 today will face long-term care costs exceeding $200,000.
With the cost of long-term care rising, the financial burden can be significant. Yet many people may be unaware of the potential implications, along with options and strategies to cope. The good news? A little planning now can mean more security later. Here's what you need to know to take control of your financial future.
What Is Long-Term Care?
Aging isn't always easy to think about, but planning for it is essential. Long-term care refers to a range of services that help people manage daily activities when they can no longer do so on their own. As we age, many of us will eventually need assistance with activities of daily living (ADLs)—basic tasks like bathing, dressing, eating and moving around.
When these everyday tasks become too challenging to manage alone, it's often necessary to seek long-term care solutions. In fact, nearly 70% of people turning 65 today will need some form of long-term care in their lifetime.
Many older adults rely on unpaid caregivers—family and friends who step in to help. In fact, more than 37 million Americans provide unpaid care for an aging loved one. But not everyone has that option. For those without family support, paid care solutions are essential to maintaining independence, dignity and quality of life.
Common Types of Long-Term Care
The three main types of long-term care include:
In-home care
For those who wish to remain in their own homes, in-home care provides support ranging from nursing care and physical therapy to assistance with bathing, dressing, meal preparation and even companionship. Depending on individual needs, caregivers may visit daily, weekly or provide 24-hour live-in support.
Assisted living facilities
Assisted living facilities offer services like meal preparation, laundry, housekeeping and assistance with bathing, dressing and grooming. Many also provide social activities, fitness programs and transportation, creating a supportive yet independent living environment. They are ideal for individuals who need help with daily activities but do not require 24-hour medical care.
Nursing homes
Designed for those with chronic conditions or disabilities—or people recovering from illness or surgery—nursing homes provide around-the-clock medical care and support from licensed nurses and healthcare professionals. These facilities offer skilled nursing services, rehabilitation therapy, medication management and assistance with daily activities for individuals requiring ongoing medical attention.
For those facing serious or terminal illnesses, many nursing homes also provide end-of-life care, including palliative and hospice services. These focus on pain management, comfort and emotional support for both residents and their families, ensuring dignity and quality of life in the final stages.
Long-Term Care Costs
Long-term care costs vary based on where you live and the type of care you need. Without a crystal ball, it's hard to predict how much or for how long. In fact, ASPE calls it a coin flip whether any given person will need long-term services and support. However, losing the coin flip can be disastrous to your quality of life.
Here's what CareScout estimates for long-term care costs each month:
- Home care has a monthly median cost of $6,292 for homemaker services, rising to a median of $6,483 for a home health aide.
- Assisted living facilities run a median of $5,900 per month for a one-bedroom unit.
- Nursing homes cost a median of $9,277 monthly for a semi-private room.
Medicare and Medicaid coverage for long-term care
People may assume that long-term care is covered by Medicare, private insurance or other government programs, but that's not usually the case. Medicare typically only pays for short-term skilled nursing care, and Medicaid may only kick in after depleting your financial resources. As a result, many people are left to pay for long-term care out of pocket, which can quickly drain their savings.
6 Options To Help Cover Long-Term Care Costs
Long-term care can be expensive, and relying on government programs isn't always an option. With limited coverage and high out-of-pocket costs, explore these different ways to fund care.
1. Tap into personal savings and retirement benefits
Your savings and retirement accounts—such as 401(k)s and IRAs—can be a key resource for funding long-term care. The extent to which you can rely on them depends on your savings habits, investment growth and the length of care needed. To build a solid financial cushion:
- Start saving early and contribute consistently.
- Automate contributions to take advantage of compound interest.
- Balance priorities: While saving for long-term care is important, don't neglect other financial goals like emergency funds or paying down high-interest debt.
A proactive approach can help ensure you have the resources to cover future care costs without derailing your overall financial security.
READ MORE: The Ultimate Guide to Calculating Your Retirement Savings
2. Look into long-term care insurance
Long-term care insurance helps cover home care, assisted living and nursing homes. Most policies pay benefits if you need help with at least two of six daily activities of daily living or have severe cognitive impairment.
When buying a long-term care insurance policy, you'll choose how much it pays, how long it lasts and when benefits begin. Options like inflation protection and spousal benefits can provide extra security but increase costs. Premiums vary based on age, health status and coverage choices. Many people buy in their 50s or 60s to secure lower rates, but costs can rise over time, so plan accordingly.
READ MORE: Is Long-Term Care Insurance Worth It?
3. Consider hybrid life and long-term care insurance policies
Hybrid policies combine life insurance with long-term care insurance coverage. They are popular because they pay out whether or not you use the long-term care benefit.
How it works: You usually pay a lump sum or fixed premiums over 5 to 10 years. If you don't need long-term care, your heirs will typically receive a tax-free death benefit. If you do need care, you can tap the policy for long-term care, although any payouts reduce the death benefit accordingly.
4. Tap into reverse mortgages
Being a homeowner has its advantages, including the ability to tap into your home's equity to help cover long-term care costs. A reverse mortgage is a loan that lets homeowners convert home equity into cash without making monthly payments. The loan is repaid when the homeowner sells the home, moves out permanently or passes away.
This can help cover long-term care costs, but there are trade-offs. If you move into a care facility, you may need to sell your home unless a co-borrower or eligible spouse still lives there. A reverse mortgage can also affect Medicaid eligibility, so it's important to weigh the pros and cons before moving forward.
READ MORE: Personal Finance 301: Reverse Mortgages
5. Take out an annuity with a long-term care rider
An annuity is a financial product that provides a guaranteed income stream in exchange for a lump sum payment or series of payments. Some annuities offer a long-term care rider, which allows you to access additional funds specifically to help cover care expenses. This can be a useful strategy for funding long-term care, as it ensures you have a steady source of income while also providing extra financial support if care is needed.
6. Sell your life insurance policy
A life settlement allows you to sell your life insurance policy to a third party for a lump sum, which can be used to fund long-term care. While the payout is less than the full death benefit, it is typically higher than the policy's cash surrender value.
If you're considering this option, organizations like the Life Insurance Settlement Association (LISA) provide databases of approved buyers to help you find a legitimate offer.
Government Assistance Programs for Long-Term Care
While not specifically designed for long-term care, several government programs can help cover certain costs, depending on eligibility requirements. Here are a few to consider:
1. Medicaid
A joint federal-state program, Medicaid covers long-term care benefits if your assets are depleted. Coverage varies by state, and not all care facilities accept Medicaid, so researching options is essential.
2. Veterans benefits
Eligible veterans may receive long-term care benefits through the U.S. Department of Veterans Affairs (VA), including nursing and medical care, physical therapy and assistance with daily tasks. To find out more, visit the U.S. Department of Veteran Affairs.
3. State and community programs
Many state and local programs offer services such as meal delivery, transportation, adult day care, respite care and other support services for long-term care. Search by your zip code or city and state at the Aging and Disability Resource Center (ADRC) to see what might be available.
To find out more about all these options, visit LongTermCare.gov.
The Bottom Line: It's Never Too Early To Plan for Long-Term Care
Long-term care needs can be unpredictable, making early planning essential. Taking steps now can help ease the financial and emotional challenges down the road. Consider these key steps:
- Plan early: Don't wait for a crisis—explore your options and create a plan now.
- Seek professional guidance: Consult with financial advisors, attorneys and eldercare experts to understand your choices and make informed decisions.
- Handle legal matters: Set up essential documents like a living will and durable power of attorney to ensure your wishes are protected.
By proactively planning, you can help safeguard your future and provide peace of mind for yourself and your loved ones.
READ MORE: Weighing the Pros and Cons of a Retirement Community
