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- Learn about long-term care
See how it can help with your future needs.
- Find out what it might cost and how to plan for it
More than half of Americans reaching age 65 today are projected to have a disability that would require long-term care.1 Those who do pay for care could end up paying a lot.
- Questions to ask yourself
Think about what kind of care you’d want, how you’d receive it, and how you’d pay for it.
Prepare for the unexpected
As you get older, you may need help with daily activities that used to be easy for you—like bathing and dressing—especially if you have an ongoing health condition or you're recovering from a recent setback. That’s where long-term care comes in. And you should prepare for the possibility that you might need it one day.
Let’s go through the basics of long-term care, the costs, and how it should factor into your strategy for living in retirement.
What is long-term care?
Long-term care often includes non-medical services for those unable to perform the activities of daily living, such as:
- Bathing.
- Dressing.
- Using the bathroom.
- Getting into and out of a chair or bed.
- Preparing meals or eating.
The effects of a stroke, osteoarthritis, and dementia are some common conditions that can require long-term care. Support and services can be provided at home, in the community, in assisted living facilities, or in nursing homes. You may need long-term care for months, years, or the rest of your life. That makes it an important consideration in your long-term planning.
What does long-term care cost?
Long-term care poses a unique challenge. What you could pay in your lifetime—and whether you’d need long-term care in the first place—is difficult to predict. More than half of Americans (56%) reaching age 65 today are projected to have a disability that would require long-term care.1 If you do need it, long-term care can get pricey. Sometimes, very pricey. And many types of insurance don’t cover it. Medicare may cover some short-term costs, but not most types of long-term care.
Vanguard suggests you account for long-term care costs separately from annual health care expenses in retirement, since they present a much different challenge. To learn more about estimating your health care costs in retirement, check out this article.
The types of services and settings where you receive the care will greatly impact the cost. Here are some examples of the national average costs annually for:
Paying for care
If you’ll need long-term care, you’ll likely have to pay for at least some of it out of pocket. On average, an American who reaches age 65 today is projected to face nearly $121,000 in future costs for long-term care and services. Families will pay nearly $45,000 (37%) of the costs out of pocket—the rest would come from public programs and from private insurance.1
Medicare often doesn’t cover most long-term care expenses. And what it does cover may not be enough to rely on. For example: Medicare will cover up to 100 days if you’ve been hospitalized for at least 3 days and skilled medical care is required. To learn more about Medicare, check out this lesson.
Covering the costs
When it comes to paying for care, think about where the money would come from. Here are some options:
- Your financial assets. Private, out-of-pocket spending is a major source of long-term care spending.
- Your home. If you’d need permanent care through a nursing home, you might not need your house anymore. If you sell it, you could use the money for other needs. You may want to consult a financial advisor to discuss your options.
- An income annuity.3 Having one wouldn’t specifically pay for long-term care. But a source of guaranteed income might help if you’re spending most of your savings on long-term care. If you’re married, you may want to think about a single-premium annuity for a surviving spouse.
- Long-term care insurance. A policy could pay for some of the costs. Keep in mind these policies can be expensive. And if you wait to buy, they generally grow more expensive the older you get. They often also have maximum payouts that cap the benefit and waiting periods before the insurance kicks in.
THE COST OF LONG-TERM CARE INSURANCE
If you’re considering insurance to help cover costs, the cost of the policies can be based on:
- Your age when you buy the policy.
- The maximum that policy pays per day.
- The maximum number of days or years the policy pays.
- The maximum lifetime amount.
- Any optional benefits. For example: Benefits that increase along with inflation.
Care from loved ones
Planning for these costs
Because long-term care can be so expensive—and because costs can vary so much—planning for these costs should be an important consideration in your overall strategy. Your personal health, your family medical history, and your support network—people who would be able to help care for you—all may factor in your planning for long-term care costs.
Ask yourself these questions when you’re planning:
- Who in your life could help care for you? Could a spouse, child, friend, or neighbor help you if needed? Are they able to? Are they willing to?
- What kind of long-term care do you want? Costs for a private nursing home are much higher than for in-home care. Consider all your options before making a decision.
- What goes away? Your budget will likely change if you need long-term care. So you may be able to save money elsewhere. Would you travel as much? If you’re considering a nursing home, would you still need your house?
- Is Medicaid part of my plan? Medicaid is a health care program for those with low incomes. A major health event and the need for long-term care could deplete your assets. In many cases, you must use up all your other assets first before Medicaid is an option. If Medicaid is part of your strategy, it’s important to know the rules well in advance. Consult with an elder law attorney.
Want to learn more about long-term care?
LongTermCare.gov. You can get more information and help finding services near you.
Create your roadmap to retirement
1Source: Assistant Secretary for Planning and Evaluation Issue Brief, Long-Term Services and Supports for Older Americans: Risks and Financing. 2022.
2Source: Genworth.com. Cost of care survey. 2021.
3Product guarantees are subject to the claims-paying ability of the issuing insurance company.
4Source: LongTermCare.gov.
Vanguard does not provide individual tax advice. You should discuss your situation with your tax advisor.
Vanguard is not responsible for the accuracy of information on third-party sites. Vanguard receives no remuneration for website links.
