Listen and subscribe to Decoding Retirement on Apple Podcasts, Spotify, or wherever you find your favorite podcasts.
The likelihood of requiring long-term care as you age is one of the greatest health-related risks facing retirees. The longer you live, the more likely it is that you’ll need care. In fact, about half of Americans turning age 65 today will need some type of long-term care in their lives.
However, the need isn’t universal, and that makes it “super hard to plan for,” Sharon Carson, a retirement strategist on the JPMorgan Asset Management Retirement Insights Strategy team, said in a recent episode of Decoding Retirement (see video above or listen below).
This embedded content is not available in your region.
For those who do require long-term care, it’s impossible to predict whether the need will be short-term or long-term. According to Carson, about one-third of older Americans require care for less than three years, while another third need it for more than five years.
And the expenses people face can vary. Carson stated that about 25% of individuals spend less than $25,000 on long-term care, a cost that may feel manageable for many. However, approximately 30% of people incur expenses exceeding $250,000, which can place a significant strain on financial resources.
Given this uncertainty, how can someone effectively plan for long-term care and its associated costs?
“We think there’s not just one answer — there’s no silver bullet, no one answer is going to be right for everybody,” Carson said. “It really takes sitting down and looking at your plan in terms of what are all of the things that I might be able to do. I think for a lot of people it’s going to be a combination. It’s not going to be just one thing.”
Here are a few approaches Carson said retirees often consider to tackle the unpredictable costs and needs of long-term care in retirement.
Support from family and friends
Many individuals rely on family members or friends for care, which can significantly reduce costs.
“That’s probably a big one for a lot of people,” Carson said. “Even if you’re going to pay for care, you’re probably going to get some help from family and friends.”
Additionally, when long-term care becomes necessary, other expenses like travel and dining out often decrease, potentially freeing up funds for care, she said.
While traditional long-term care insurance can be expensive, Carson suggested exploring combination products that blend life insurance or annuities with long-term care benefits. She also recommended considering policies with longer elimination periods or those that cover only a portion of the costs to make premiums more affordable.
“Realize it may not have to cover the whole thing,” she said. “If you’re going to look at all these solutions in tandem, how much does insurance really have to cover?”
Life insurance for a surviving spouse can provide a financial safety net, helping to address situations where one spouse’s long-term care expenses deplete the couple’s savings, leaving the surviving spouse without adequate funds for living expenses.
A care worker helps a senior citizen, who is holding on to a rollator, on the way to her home on Friday, Dec. 19, 2024. (Michael Bahlo/picture alliance via Getty Images) ·picture alliance via Getty Images
Selling a home or using a reverse mortgage can be practical solutions for funding long-term care, particularly since, for many, their home is their primary asset and often their only substantial source of savings, Carson explained.
A reverse mortgage is a specific type of home loan for homeowners aged 62 or older that allows them to convert a portion of their home equity into cash without having to make monthly mortgage payments.
Also known as Life Plan Communities, these offer various levels of care and can be an attractive option for some retirees.
Carson noted, for instance, that CCRCs offer various payment plans, including options that require higher upfront payments and others that follow a pay-as-you-go model. CCRCs also offer different levels of services and different levels of care.
“There’s a lot of different flavors,” she noted. In essence, there are multiple ways to pay for long-term care that go beyond relying on unpaid caregivers who are family members.
In the podcast, Carson cautioned against relying solely on Medicaid as a long-term care solution.
While many are interested in asset protection strategies to qualify for Medicaid, she stressed the importance of consulting with a local attorney due to varying state laws.
“The main thing I have to say about that is you need to talk to an attorney who knows the laws in your state because it’s not going to be the same in Pennsylvania, New York, Ohio, California,” she said. “They’re all going to be different.”
Medicaid is the primary program providing comprehensive coverage of healthcare and long-term services and support to more than 90 million low-income people in the US, according to KFF.org
Carson also warned about the potential risks of transferring asset control to family members and noted that Medicaid may limit care options compared to private pay arrangements.
