Aging is a natural part of life, yet it comes with complex health challenges that often demand long-term care. Many seniors can’t manage daily tasks independently, so they rely on family members for help. While caregiving is often done with love, it can be emotionally and financially draining.
Healthcare costs are steadily rising, and life expectancy is increasing. In 2022, the average life expectancy in the US was 77.5 years for both sexes. The operative word here is “average.” It is not unheard of for people to live past their 90s, bringing into question how prepared they are for retirement and what the medical costs that come with aging are.
Indeed, the need for thoughtful long-term care planning has never been greater. Without it, you may feel overwhelmed with the expenses and difficult decisions.
This guide can help you understand what lies ahead as it breaks down the financial realities of long-term care for seniors and shares practical ways to protect your family’s future.
Understanding Long-Term Care
Long-term care covers services that help seniors and people with disabilities or illnesses with daily activities. These include personal, medical, recreational, and social care. It’s usually family members, friends, or professional caregivers in the senior’s home or a nursing facility who look after these needs.
With more than 57.8 million Americans being over 65 years old, the demand for long-term care is high. Those aged 65 have nearly a 70% chance of needing long-term care services in their golden years.
The financial implications are significant. In 2023, the US annual median cost for long-term care ranged from $24,700 to $116,800. Thankfully, Medicaid provides health coverage for 18.2 million Americans aged 50 and up.
Given the high likelihood of needing care and the substantial costs involved, it’s crucial to consider long-term care expenses in your retirement planning. Without proper preparation, the costs can quickly overwhelm you and your family.
What Are Your Options for Long-Term Care?
When you reach your senior years, your needs may change and require certain treatments. Here are some types of long-term care to consider.
Skilled nursing
Nursing homes or facilities offer round-the-clock skilled care and support for seniors with serious health issues or disabilities. Their staff includes licensed healthcare providers who can help with medical care, meals, and activities—the most complete care option outside a hospital.
Since they offer comprehensive care, nursing homes charge a monthly median of $8,929 for a semi-private room or $10,025 for a private room. Also, not all insurance policies cover long-term care in nursing homes. Some only cover short-term rehab stays or certain medical conditions requiring skilled nursing care.
Assisted living
Services for assisted living cater to seniors who need help with daily activities—such as bathing, dressing, and meal preparation—but don’t require constant medical supervision. These communities offer a more independent lifestyle, with social activities and a sense of community
The cost of assisted living depends on where you live and how much care you or your loved one needs. For example, prices in the Midwest can range from $3,500 to $8,000 per month.
Medicare and private health insurance usually don’t cover assisted living costs, but long-term care insurance or certain life insurance policies can help. Some policies let you use part of your death benefit while living or sell the policy for a lump sum to pay for care.
Home care
For a more affordable option, there are home care services. They assist with daily tasks like bathing, grooming, and meal preparation. Home caregivers can also help with medical care, such as physical or occupational therapy. However, for round-the-clock assistance, home care might become more expensive than a facility.
Home care costs widely vary, depending on the number of hours needed, but on average, it costs approximately $4,004 to $6,673 per month. Some insurance policies cover physical therapy or hospice care.
The Hidden Costs of Long-Term Care
Aside from the direct costs of long-term care, there are also hidden ones that you or your family might overlook. Below are some expenses that might add to the financial strain.
Out-of-pocket expenses
Most insurance policies and government programs have limited coverage, so you may have to pay for some long-term care expenses out of pocket. These expenses can include care services on weekends and holidays and special ones such as medication management and transportation.
You may also have to pay the deposit fee for nursing facilities and assisted living communities. The fee typically covers administrative expenses and building renovations.
Opportunity costs
Family members who choose to care for you in your golden years may have to reduce their working hours, decline job promotions, or leave the workforce entirely. In effect, they lose income and miss career growth opportunities. They may also stop saving money or take on more debt to cover long-term care costs.
These consequences can have long-term financial implications for the family.
Financial stress and emotional costs
As mentioned, managing the ongoing costs of long-term care can create financial stress for your caregivers. There may also be emotional challenges surrounding long-term care. Juggling care duties with personal and work responsibilities can impact the overall well-being of everyone in the family.
Tax treatment of long-term care insurance
Long-term care insurance can help offset some costs, but it comes with financial considerations. Premiums for these policies can be high and are only partially deductible depending on your age or income. Additionally, any payouts from these policies may impact your taxable income.
How to Make a Long-Term Care Plan
With so many financial and emotional implications of long-term care, it’s better to plan for it as soon as possible. Here are some best practices on how to pay for long-term care.
Start early (and adjust often)
You might be tempted to put retirement and long-term care on the back burner, especially if you’re years away from turning golden. But getting a head start means you can explore all possible options, plan your finances, and make informed decisions.
Remember, it’s never too early to begin planning for long-term care. Then, as your circumstances change, revisiting and updating your plan can ensure it still aligns with your goals.
Determine the level of care you need
Do you have a chronic illness or disability? Will you need help with daily activities like bathing or walking? How about more specialized care like physical therapy or dialysis? Identifying your current and future needs can help you choose the right level or type of care, whether that’s home care, assisted living, or a nursing facility.
This approach also allows you to think about long-term care costs. Just like you would get auto insurance if there’s a chance of a car accident, planning for long-term care lets you prepare for any future needs.
Create a comprehensive financial plan with long-term care in mind
With long-term care costs raking thousands, it’s crucial to include them in your overall retirement and financial planning. For instance, think about whether you’d want to receive care in your home or a nursing facility. If you opt for the former, you’ll have to pay for in-home care on top of household expenses like food and utilities.
Factoring in inflation, out-of-pocket expenses, insurance premiums, and your caregivers’ potential income loss can help you transition to senior years with ease.
Have asset protection strategies built into the plan
One way to protect your assets in retirement is creating a separate source of funds for your long-term care needs. This way, you can set aside money for when you need it. You can also set up trusts or buy long-term care insurance to keep your savings safe from care costs.
Where you keep this money matters, too—consider using a traditional IRA, Roth IRA, or health savings account (HSA). It’s best to work with a legal or financial expert to include these protections in your plan.
Involve your family in the decision-making
It’s important to discuss your long-term care plan with your loved ones, whether or not they’ll be your main caregivers. This way, everyone is on the same page and ready to make informed care decisions when the time comes.
A crucial part of this process is estate planning. Organize your legal affairs, including having a will, power of attorney, and healthcare proxy. These measures help distribute your assets properly and clearly define responsibilities that can prevent family disputes.
Research about state- and federal-level tax credits and deductions
Many states and the federal government offer tax credits and deductions for long-term care costs. For example, if you’re over 70, you can deduct up to $5,880 for long-term care insurance premiums as part of your medical expenses.
Research local and federal options to maximize these benefits and then work with a tax advisor on how you can integrate them into your financial plan effectively.
Consult with a financial planner
Long-term care planning involves various financial, legal, and healthcare considerations. Hence, it’s crucial to consult with a financial planner specializing in elder care or retirement planning. They can present various options, create a tailored plan, and secure your future.
For instance, a planner can assess your current financial situation and guide you around long-term care insurance. They can also create a savings plan specifically for your future healthcare needs and guide you on available tax benefits.
Future-Proof Your Life with Long-Term Care for Seniors
Dealing with long-term care can be tough, especially with the potentially high costs. That’s why planning for your senior years is important. By knowing your care options, making a solid financial plan, and getting your family involved, you can take control of your future and reduce stress.
Financial advisors like Tencap Wealth Coaching can help you with personalized strategies and asset protection. We understand tax rules and can create a long-term care plan for your financial goals.
Contact us today for expert guidance.
The information contained herein should in no way be construed or interpreted as a solicitation to sell or offer to sell advisory services to any residents of any State other than the State of Utah or where otherwise legally permitted. All content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor is it intended to be a projection of current or future performance or indication of future results. Moreover, this material has been derived from sources believed to be reliable but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. Purchases are subject to suitability. This requires a review of an investor’s objective, risk tolerance, and time horizons. Investing always involves risk and possible loss of capital.
Nick Carrigan
Nick trains and develops families in creating, maintaining, and growing wealth. This includes educating clients on the science and academics of investing, comprehensive financial planning, and ongoing coaching to ensure discipline for a lifetime. Nick has seen this create incredible levels of freedom, fulfillment, and love for the families he works with.
