Key Takeaways
- Long-term care insurance can help protect your nest egg.
- To keep premiums down, shop for a policy when you’re in your 50s.
- Choose an elimination period that fits your budget.
It’s no secret that long-term health care is the wild card of retirement. While some people sail through retirement with just a minimal need for care, others require it for many years at a huge expense to themselves and their families.
The challenge is in knowing what might happen with your own health way down the road. Will you need long-term care (LTC), and for how long? It may be impossible to predict the future, here’s what to consider as you weigh your options.
A big outlay
It’s a safe bet that, as you age, you’ll need some help caring for yourself. Perhaps you’ll recover from an illness or surgery. Or maybe you’ll need ongoing care if you become frail and have difficulty performing daily tasks such as bathing and eating.
On average, fully 70% of people who turn 65 today will need some form of long-term care. But the cost of long-term care can blow a big hole in a retirement budget. The national median price of a private room in a nursing home is over $100,000 a year. Home health aide care can exceed $70,000 annually1 (depending on where you live), and assisted living runs about $54,000 a year.2
(These and other care costs can vary dramatically depending on which state you reside in.)
Women, take special note
Most people require care for only a short period, typically around two years. However, for some people, long-term care becomes quite long indeed.
People suffering from dementia could find themselves needing care for a decade or longer — their physical health might remain good, but they require help with daily activities and keeping themselves safe. The lifetime cost of dementia care could be well over $300,000.3
And because women typically live longer than men, they generally need care for a longer period. By the time a woman needs help caring for herself, she is often already widowed.
Long-term care insurance can protect your nest egg
So, how do you pay for care without wiping out your savings? Long-term care insurance can pick up some of the costs and reduce your risk of running out of money. Typically, policies reimburse you a set dollar amount per day for a set period of time. That may not cover the full amount of care, but it can pay for enough of it so you aren’t forced to drain all your savings.
To activate your policy, you must show you’re unable to perform activities such as bathing, eating and dressing. Coverage kicks in after an elimination period, the amount of time between when your policy is triggered and when it starts to pay out a benefit. The shorter the elimination — or qualifying — period, the higher your premiums may be.
Like other types of insurance, the younger and healthier you are when you first purchase coverage, the less it should cost. For example, a 55-year-old couple would pay $3,050 a year on average for a policy that covers up to $386,500 in care costs for each policyholder at age 85.4 But if you wait until retirement age or later, you’ll pay (often a lot) more.
Even so, long-term care insurance claims (the benefits insurers pay out) are soaring—long-term care insurance companies paid out a record $13.25 billion in 2022 (up from $12.3 billion in 2021).4 That’s caused many insurers to raise policyholders’ premiums significantly, and even led some to leave the LTC market entirely. It’s also caused consumers to consider other ways to cover the potential costs of long-term care. These include permanent life insurance policies with provisions that let you use their value toward care expenses; “hybrid” (and particularly expensive) life/LTC insurance; and “self-insuring” by planning to tap retirement savings for care if the need arises.
What you can do next
As life expectancy rises, more families will face the issue of how to pay for long-term care. (Calculators like the one at aarp.org can help you compare costs in your area.) So, learn more about your options, assess your likely needs and build a plan.
1 Haupt, Angela “How Much Does Home Health Care Cost?” Forbes, Updated Oct. 19, 2022 (https://www.forbes.com/health/healthy-aging/home-health-care-cost/)
2 “How Much Does Assisted Living Cost?” Where You Live Matters, Updated Aug. 4, 2022 (https://www.whereyoulivematters.org/how-much-does-assisted-living-cost/)
3 “What is the Lifetime Cost of Caring for a Person with Alzheimer’s?” Care.com, Nov. 30, 2020
4 American Association for Long-Term Care Insurance, “Paid Long-Term Care Insurance 2022 Claims Grow” Feb. 15, 2023 (https://www.aaltci.org/news/long-term-care-insurance-association-news/p…)
Ilana Polyak is a freelance writer who specializes in personal finance and the financial advisory industry. Her work has appeared in The New York Times, Barron's, Kiplinger's Personal Finance, Bloomberg BusinessWeek and CNBC.com, where she is a frequent contributor.
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