How to Build Your Long-Term Care Retirement Strategy

Bob Carlson

The cost of long-term care is one of the major retirement financial worries.

Survey after survey confirms that. The data also confirms that only a few people do anything about long-term care, while others do nothing but worry. In fact, one survey found that many people would rather go to the dentist than talk to someone about long-term care.

That needn’t be the case. You can put together a plan to pay for long-term care, in case you need it. There’s no magic bullet to long-term care planning. Instead, set your goals and consider all the tools available. Then, you’re more likely to have a plan that is affordable and meets your needs.

Remember, long-term care is more than just nursing home care. It can be any type of assistance with regard to daily living activities. Adult day care, including someone to help clean and cook, is considered long-term care. Home health care is also long-term care, as well as some physical therapy, residing in assisted living facilities, or parts of a continuing care retirement community. Of course, a nursing home or other full-time custodial care is long-term care.

Most people want to stay in their own homes for as long as they can. That becomes easier each year, as more and more long-term care takes place in residences, though this may have to be facilitated by a professional. Some people want or assume that when they need help, they’ll be assisted by family members.

Other people favor professional caregivers and don’t want to burden family members, yet some of these people don’t want strangers in their homes. You need to decide your preferences and be sure they’re realistic, then consider the options available.

Most people understand that a majority of older people need long-term care at some point in their lives, but also believe that they won’t be among those who need it. Most people greatly underestimate the cost of long-term care, even if it’s just home assistance. I urge you to visit the websites of John Hancock Insurance and Genworth to review their cost estimates for different types of long-term care in your area of the country.

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Now, let’s consider the elements of your long-term care plan.

Family & Friends

Family members, and perhaps some close friends, are the likely sources of long-term care for many people. We all know people who spent a considerable time helping a parent or other relative who couldn’t fully take care of themselves. Yet, that isn’t always a good or viable option.

Is a family member even available? Family members might live too far away or have families, jobs, and other obligations. Family caregiving might work in the short-term, but is it viable for an indefinite extended period? Studies show family caregiving is burdensome, with negative long-term effects on finances and the health of the caregivers.

Qualifications are also an issue. A family member can help with cooking, cleaning, and other household chores, but medical help would require training.

On the positive side, under certain circumstances, some long-term care insurance policies and other payors of long-term care expenses will reimburse family members for helping.


Despite what many people believe, it is unlikely Medicare will meet your long-term care needs. While Medicare does pay a lot of money to facilities and professionals, the covered care is only up to 100 days of long-term care, following a hospital stay of at least three days. In other words, it is for rehabilitation after an illness, surgery, or injury.


A high percentage of nursing home expenses in this country are paid by Medicaid. Yet, to qualify for Medicaid, you have to meet the program’s definition of being impoverished. The exact standards vary in different states.

Generally, you have to give away most of your assets five years before applying for Medicaid, or spend your assets for at least five years of care before applying. Take note that Medicaid pays for nursing home care, but not for assisted living or many other types of long-term care.

Long-Term Care Insurance

Long-term care insurance has been in turmoil since the financial crisis. Insurers were beset by low investment returns, rising costs, longer life expectancies, and more claims than they estimated. Many insurers dropped out of the market. Most of those that remained increased premiums substantially over the last few years.

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Even so, you should consider a traditional, stand-alone, long-term care insurance policy from the remaining major carriers as part of your long-term care plan. Most of the insurers are diversified, so the weakness in their long-term care business segment can be covered by their other businesses. They seemed to have learned from past mistakes and are charging realistic premiums, reducing the potential for significant increases in the future.

Many people overestimate the cost of long-term care insurance, and that’s one reason few people buy it.

Let’s take an example: A married couple (let’s say each spouse is age 60) in average health paid total premiums of $2,170 to $3,930 in 2015, according to the American Association for Long-Term Care Insurance. That’s for a maximum of three years’ coverage at $150 per day.

A concern of many potential buyers is that their premium dollars will be wasted if they never need the care. However, long-term care should be viewed the same as homeowners’ or auto insurance. You buy it to protect against a catastrophic loss that you hope never occurs. The premiums on the policy just mentioned, for example, would save the couple $164,000 per spouse, if each needed three years of long-term care.

Long-term care insurance also has inflation protection, so, at age 80, the policy would pay maximum benefits exceeding $325,000. The premiums protect that portion of your estate if you need the coverage. In your planning, you should assume regular increases in the premiums.

Most long-term care insurance covers all types of care, even non-medical assistance at home. So, a good policy could help you stay in your home longer without the need to burden family and friends.

Hybrid Policies

Annuities and life insurance with long-term care riders are growing in popularity, outselling traditional long-term care insurance in the last few years. Compare these to traditional long-term care insurance when developing your plan.

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The appeal of these products is that you or your heirs could receive something if you don’t need all the long-term care coverage. With the annuities, you or your beneficiary receive the account balance. With the life insurance, your beneficiary receives the policy benefit tax-free.

The features, costs, and benefits of these hybrid policies vary greatly. You have to pay a cost for the long-term care. With the annuity, the interest rate earned from your account is usually less than that of a standard annuity, and you’ll likely have less access to the money. With the life insurance, either you pay higher premiums or receive a lower insurance benefit.

Permanent Life Insurance

Some people choose permanent life insurance to protect their estates and loved ones from the cost of long-term care. They plan to pay for long-term care primarily from their income and assets, even if that means spending down the assets. They own permanent life insurance to ensure that their heirs inherit at least the policy benefit if the entire estate is spent on long-term care. And, if the long-term care isn’t needed, the loved ones inherit both the estate and the insurance benefit. A straight permanent life insurance policy could be less expensive than long-term care insurance, or life insurance with a long-term care rider.

The disadvantage of this is that you need enough income and liquid assets to pay for long-term care when it’s needed. Additionally, the strategy might not be viable if you’re married, and your spouse has a standard of living to maintain, while you pay for long-term care.


You’ll pay for at least some long-term care yourself. These other tools create some certainty and limit the extent to which your income and assets will be used to pay for long-term care. But, outside of that, you’ll self-insure for all long-term care needs, and risk that the entire estate will be depleted in your lifetime.

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