Planning for long-term care: financial strategies to consider

By Adam Boyce, Insurance Product Specialist II | Citizens Wealth Management

Thinking about one day being unable to live independently isn't easy, but nearly 70% of those who reach age 65 will need some form of long-term care.¹

Planning ahead can help give you more options, protect your savings, support the people you love and give you the clarity to make decisions on your own terms. Understanding what long-term care involves, what it costs and how to fund it is where that plan begins.

What is long-term care planning?

Long-term care planning is financially preparing for a time when you or a loved one may need help with everyday activities, such as bathing, dressing, eating and moving safely. It's distinct from medical care, which treats illnesses or injuries.

Long-term care covers assistance that falls outside medical care and is broader than most people assume. Care can be provided at home, in an assisted living residence or in a skilled nursing facility. Additionally, continuing care retirement communities can support you through different stages of need.

Building long-term care into your financial plan early offers more options and can help protect your retirement savings ahead of potential needs.

Types of long-term care and care settings

Care settings align with different needs, preferences and budgets. The most common options include:

• In-home care: Assistance provided in your home, helping support independence and allowing you to age in place.
• Adult day care centers: Community-based programs offering daytime care, structured activities and social connection.
• Assisted living facilities: Residential communities that provide personal care services while preserving day-to-day independence.
• Nursing homes: 24/7 skilled nursing care for those with significant medical or cognitive needs.
• Continuing care retirement communities (CCRCs): Tiered facilities that can support residents from independent living through skilled nursing care as needs evolve.

How much does long-term care cost?

Long-term care costs vary significantly depending on the type of care and where you live. As a starting point, however, you can consider these average costs:²

• In-home care: A non-medical professional caregiver has a median rate of $35 per hour.
• Assisted living: The national median runs around $6,200 per month. State medians range from $4,300 to over $12,000 per month.³
• Nursing home (semi-private room): The median cost nationwide is approximately $9,600 per month.
• Nursing home (private room): Nationally, the median cost is nearly $10,800 per month.

Several factors can cause costs to add up significantly over time. Most people need long-term care services for years, either at home or in a facility. Those managing cognitive decline or chronic health conditions may need care for longer. On average, women live longer than men and tend to need more long-term care — over 70% of nursing home residents are women.⁴

Your health history, family longevity and caregiving abilities are worth factoring into your planning horizon. Without a funding strategy in place, even a few years of long-term care costs can deplete retirement savings and affect a surviving spouse's financial security.

Funding strategies for long-term care

Most people fund long-term care through a combination of sources. For instance, Medicare covers skilled nursing care up to 100 days following a qualified hospital stay, but it isn't designed to cover long-term nursing care.⁵ Medicaid offers broader coverage, but you must meet strict income and asset requirements. Veterans and surviving spouses may also qualify for VA benefits.

But for most, these programs only cover part of the costs. The three main strategies for funding the remainder are long-term care insurance, hybrid insurance policies and self-funding.

Long-term care insurance

Long-term care insurance is a dedicated policy designed to cover costs across a range of settings, including in-home care, assisted living and nursing facilities. Policies vary in how they structure benefits, coverage amounts and duration.

Premiums are based on age and health at the time of purchase, and buying earlier generally means lower costs. You may want to consider this coverage in your mid-50s to early 60s, when premiums are more affordable, and health requirements are easier to meet.

For those who qualify, a dedicated policy can help preserve assets, support care preferences and reduce the financial pressure on family members who might otherwise need to step in.

Hybrid insurance policies

Hybrid insurance policies combine long-term care coverage with a life insurance policy or annuity, offering dual benefits in a single product. They've grown in popularity in part because they address one of the biggest objections to traditional long-term care insurance: the concern that you'll pay premiums for years and never use the coverage.

With a hybrid policy, if long-term care is needed, the policy helps cover those costs. If it isn't, beneficiaries receive a death benefit or an annuity payment, so the coverage provides value either way.

Different approaches are available with a hybrid insurance policy:

• Life insurance with a long-term care rider: Allows you to draw on the death benefit early to cover costs if needed.
• Linked benefit policies: A dedicated combination product that integrates both coverages from the start.

Premiums for hybrid policies are typically more predictable than long-term care insurance, and many policies can be funded with a single lump-sum payment rather than ongoing premiums.

The trade-off is that long-term care coverage is generally lower than a standalone policy. For people who want protection and flexibility without committing to a use-it-or-lose-it structure, hybrid policies may be worth evaluating.

Self-funding

You may choose to self-fund your long-term care by using personal savings, investments or home equity to cover costs directly. For people with higher assets, it can offer more flexibility in choosing care settings, providers and the level of support you or a loved one receives.

But self-funding requires careful planning for costs, especially when the duration of care needs is often difficult to predict. That can introduce additional risk into your plans.

Consider the following as you build a long-term care strategy:

• Asset allocation: Earmarking a dedicated pool of assets for potential care costs, separate from day-to-day retirement income, can help prevent care expenses from disrupting a broader financial plan.
• Health savings accounts (HSAs): For those still working, HSA contributions are tax-deductible, any potential growth is tax-free, and withdrawals are tax-free for qualified medical and long-term care expenses. It makes them a tax-efficient vehicle for future care funding.
• Home equity: A home sale or reverse mortgage may provide additional liquidity if care needs arise later in retirement.

As you plan, consider the impact on the surviving spouse and heirs. Significant care costs can draw down shared assets quickly. In many cases, self-funding is part of a broader plan that works in conjunction with other options.

Put your long-term care plan in place

Consider long-term care planning as part of your financial strategy from the start. And your plan should be revisited over time. Health status and family circumstances shift, and evolving financial situations can change things. Building in regular reviews helps ensure your plan stays aligned with your life and goals.

A Citizens Wealth Advisor can help you build a plan that addresses long-term care considerations and prepare for the future with confidence.

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