The $100,000 Question: How Will You Pay for Long Term Care Costs?
Many families face a challenging reality when a loved one needs long term care. Most people haven’t saved for this expense, and they’re shocked to discover just how much assisted living or nursing homes cost. Even more surprising? Medicare doesn’t cover long term care.
To help our clients better understand their options, we consulted with Ericka Marini, CFP®, a Financial Advisor with EdwardJones, about long term care insurance and planning for these future costs.
What is Long Term Care?
Long term care includes services that help people who can’t perform basic daily activities on their own. This might mean needing help with bathing, dressing, eating, or moving around. Care can be provided in various settings including at home with health aides, in assisted living facilities, or in nursing homes.
About 70% of people over age 65 will need some type of long term care during their lifetime. Women typically need care for about 3.7 years, while men need it for about 2.2 years.
Understanding Long Term Care Costs
The costs can be staggering. According to the 2024 CareScout and Genworth Cost of Care surveys, here’s what families face today:
National Median Costs (2024):
- Nursing home semi-private room: $111,325 per year
- Nursing home private room: $127,750 per year
- Assisted living facility: $70,800 per year
- Home health aide: $77,792 per year (based on 44 hours per week)
These costs vary dramatically by location. According to Genworth’s Cost of Care data, in Texas or Louisiana, nursing home care might cost around $175 per day. In Alaska or California, the same care can reach $1,000 per day. Even within states, urban areas typically cost more than rural ones.
Most families are unprepared for these expenses. Many people wrongly believe Medicare will cover long term care, but it doesn’t. Eventually, most people who need extended care end up relying on Medicaid after spending down their assets.
Two Ways to Pay: Save More or Buy Insurance
When planning for long term care costs, you have two main options. You can save extra money specifically for these future expenses, or you can purchase long term care insurance.
Option 1: Save Extra Money According to Marini, for moderate planning, you should set aside $200,000 to $250,000 per person above normal retirement savings. This could cover several years of care, including possible nursing home stays. If you have long life expectancy, family history of dementia, or live in a high cost state, you might need $300,000 to $400,000 or more per person.
Option 2: Purchase Long Term Care Insurance Long term care insurance helps pay for care services not covered by Medicare, Medicaid, or traditional health insurance. As Marini explains, these policies cover nursing homes, assisted living centers, adult day care, and home care services.
Why Choose Insurance Over Saving?
Today’s long term care insurance policies offer several advantages that make them attractive compared to just saving money:
Hybrid Policies Reduce Risk Modern hybrid life and long term care policies have become very popular. Marini notes, “These offer a death benefit or return of premium if the LTC isn’t used, or otherwise, more flexibility. These reduce the ‘use it or lose it’ concern.” With these policies, your money isn’t wasted if you never need care.
Leverage Your Money A long term care policy can provide benefits worth much more than what you pay in premiums. Marini points out that “the best way to reach your target LTC savings is often a hybrid life/LTC policy to reduce the cash you need to set aside.”
Protection from Inflation Many newer policies include inflation protection, which helps your benefits keep pace with rising care costs.
Clear Coverage Terms Today’s policies have better defined coverage, especially for cognitive impairment like dementia. They also offer more customization options, including shared benefits with your spouse and different care settings.
What Is Long Term Care Insurance?
Long term care insurance helps pay for care when someone can’t perform basic daily activities on their own. This might happen because of aging, illness, chronic conditions, or disability. As Marini explains, “Long term care insurance covers care generally not covered by Medicare, Medicaid, or traditional health insurance.”
These policies can cover:
- Nursing home care
- Assisted living centers
- Adult day care
- Home health aides
- Personal care assistance in your own home
- Care coordination services
- Caregiver training
How Have Policies Changed?
Long term care insurance today looks very different from policies from 20 years ago. According to Marini, several important improvements have emerged:
Hybrid Policies Many people now choose hybrid life and long term care policies. These offer a death benefit or return of premium if you never need the long term care coverage. This addresses the old worry about paying for something you might never use.
Better Coverage for Cognitive Issues Today’s policies have clear coverage for cognitive impairment like dementia. Many older policies didn’t explicitly cover these conditions or had confusing requirements.
More Stability New policies must follow stricter state insurance laws. Insurance companies need to maintain higher reserves and provide more transparent pricing. This means fewer surprise premium increases.
Customization Options You can now add various features to your policy, such as: • Shared benefits with your spouse • Inflation protection • Different payment options • Flexibility in where you receive care
When Should You Buy Long Term Care Insurance?
Timing matters when purchasing long term care insurance. Marini identifies the “sweet spot” as your mid 50s to early 60s. Here’s why:
- You’re close enough to when you might need care, so you won’t pay premiums for decades before using it
- Premiums cost less than if you wait until your late 60s or 70s
- You’re more likely to qualify medically
Some people consider buying coverage in their 40s or early 50s to lock in lower premiums while they’re healthiest. However, this means paying premiums for many more years. Marini suggests getting multiple quotes and starting your research in your late 40s to find the best option for your situation.
How Much Should You Save for Long Term Care?
The amount you need to save depends on several personal factors: • Where you live (costs vary widely by state and between urban and rural areas) • Your family’s typical longevity • Family history of conditions requiring extended care
Marini offers these general guidelines:
Moderate Planning For most people, setting aside $200,000 to $250,000 per person above normal retirement savings can cover several years of care, including possible nursing home stays.
High Risk Planning If you have long life expectancy, family history of dementia, or live in a high cost state, consider saving $300,000 to $400,000 or more per person. This would cover 5 or more years of full time care.
Marini notes that a hybrid life/LTC policy can help reduce the cash you need to set aside for long term care expenses.
Important Considerations for Couples
Many couples worry about what happens if one spouse needs extended long term care. Will there be enough money left for the other spouse to maintain their quality of life? This is where professional planning becomes essential.
Some people plan to use their home’s equity for long term care needs by downsizing in retirement. Others want to preserve their home to leave to their children. Your financial advisor can run multiple scenarios to see how different long term care situations would affect your retirement plans.
Making Financial Decisions
We recommend consulting with a financial advisor to determine whether long term care insurance makes sense for your situation or if you should focus on saving more for retirement. As Marini notes, “It helps to have a financial advisor who is insurance licensed in your state help you navigate through the many options, while understanding what your priorities are in a long term care policy.”
A financial advisor can help you: • Compare different long term care insurance policies • Determine the right amount of coverage for your needs • Decide between traditional policies and hybrid options • Calculate how much additional retirement savings you might need • Create a comprehensive plan that protects both spouses
Taking Action
Planning for long term care might feel overwhelming, but taking steps now can protect your family’s financial future and give you more options when the time comes. Consider these action items:
- Research long term care options starting in your late 40s
- Consult with a financial advisor about whether insurance or savings is better for your situation
- Discuss your wishes with family members
- Understand what Medicare does and doesn’t cover
- If you decide to pursue long term care insurance, get multiple quotes to compare options
Long term care planning isn’t just about money. It’s about ensuring you can receive the care you need while protecting your family’s financial security. By understanding your options now, you can make informed decisions that give you peace of mind for the future.
When the time comes to actually choose a long term care facility or navigate care transitions, Umbra Health Advocacy is here to help. Our experienced patient advocates can guide you through comparing care options, finding the right facility, and ensuring smooth transitions from home or hospital to long term care.
Long Term Care FAQs
What is long term care and what types of services does it include?
Long term care includes services that assist individuals who cannot perform basic daily activities on their own, such as bathing, dressing, eating, or moving around, and can be provided in settings like home with aides, assisted living facilities, or nursing homes.
What are the current costs of long term care services in the United States?
In 2024, the median costs are approximately $111,325 per year for a semi-private nursing home room, $127,750 for a private room, $70,800 for assisted living, and $77,792 annually for home health aides based on 44 hours per week.
Why is Medicare insufficient for covering long term care expenses?
Medicare does not cover long term care expenses, leaving most families unprepared for these high costs, and often requiring reliance on Medicaid after assets are spent down.
What are the main options for funding long term care costs?
You can either save extra money specifically for these expenses, typically $200,000 to $250,000 per person, or purchase long term care insurance to help cover services not paid by Medicare or Medicaid.
When is the optimal time to purchase long term care insurance and why?
The optimal time is in your mid 50s to early 60s because premiums are lower, you are close enough to potential need, and you are more likely to qualify medically, while also avoiding paying premiums for many years if purchased earlier.