For many Americans approaching retirement, the focus is often on investment balances, Social Security timing, and creating reliable income streams. And those things are important! But there is a financial retirement risk that can often go underestimated or forgotten that deserves closer attention: healthcare and long-term care costs.
As unpleasant as the topic may be, avoiding this conversation doesn’t make the risk disappear. In fact, delaying healthcare and long-term care planning could increase financial strain later in life, potentially disrupting an otherwise well-constructed retirement plan.
Long-Term Care Is More Common Than Many People Think
Many pre-retirees assume long-term care is something that only affects a small percentage of older adults and assume they won’t be a part of that group. However, statistics suggest otherwise. According to the Urban Institute, the average 65-year-old has a nearly 70% chance of needing some type of long-term care during their lifetime. Furthermore, approximately 20% of adults will require that care for more than five years.
According to the U.S. Department of Health and Human Services, nearly 70% of today’s 65-year-olds will need some form of long-term care during retirement, and roughly 20% will require care for more than five years. Long-term care can include assistance with everyday activities such as bathing, dressing, mobility, meal preparation, or memory support.
Care may come in several forms, including:
- In-home care
- Adult day services
- Assisted living facilities
- Skilled nursing or nursing homes
- Informal caregiving from family members
While many people hope to age independently at home, the cost of even moderate assistance can be substantial, so it’s something worth paying attention to.
The Rising Cost of Care
Long-term care costs have climbed dramatically in recent years. According to AARP’s Public Policy Institute, median long-term care expenses increased sharply between 2019 and 2024, with home care and assisted living costs rising nearly 50%, adult day services rising 33%, and nursing home costs jumping 25%.
Current annual averages nationwide include:
- Around $26,000 annually for adult day services
- Approximately $60,000+ for moderate in-home care
- Nearly $128,000 annually for a private nursing home room
- Roughly $115,000 annually for a semi-private nursing home room
These figures stand in stark contrast to the typical American’s preparation. The median household income for adults 65 and older is roughly $60,000. This means even moderate home care (30 hours per week) can cost as much as an older adult’s entire annual income, while assisted living or nursing home care far exceeds it.
The Medicare Misconception
One of the most common retirement planning mistakes is assuming Medicare will cover long-term care expenses.
Medicare is a federal health insurance program that provides important healthcare coverage for those 65+ or with specific disabilities, including hospital care, physician visits, preventive care, and limited home health services. However, Medicare generally does not pay for ongoing custodial long-term care or assisted living expenses.
Many retirees are surprised to learn that Medicare only covers short-term skilled nursing rehabilitation under limited conditions, and only for up to 100 days following a qualifying hospital stay. Even then, daily copayments ($217 for 2026) apply after the first 20 days.
As a result, retirees often find themselves paying out of pocket much sooner than expected.
Medicaid and the Middle-Income Squeeze
If Medicare won’t pay, many assume Medicaid will. While Medicaid is the largest payer of long-term care services in the United States, qualifying is far from simple.
Eligibility rules are strict and vary by state. In many cases, individuals must “spend down” much of their assets before becoming eligible. This process can be complex, often requiring specialized legal guidance to navigate. Even then, choices around facilities and living arrangements may become limited, and you may be placed in a facility you would otherwise not choose or have to share a room with others.
Middle-income retirees may be affected the most by this as they earn too much for Medicaid but not enough to easily absorb six-figure annual care costs.
Why Early Planning Matters
The good news is that the earlier you plan, the more options you have. Starting earlier may lessen the savings burden through long-term growth and compounding.
Early planning also expands available options, including:
- Long-term care insurance
- Hybrid life insurance policies with long-term care benefits
- Annuities designed to supplement future care costs
- Health Savings Accounts (HSAs)
Long-term care insurance remains one of the more common planning tools. According to the American Association for Long-Term Care Insurance, a healthy 55-year-old man may pay around $1,750 annually for coverage, while women and couples often pay more due to longer life expectancies.
Importantly, premiums generally increase with age, making early evaluation beneficial.
Healthcare Planning Is Retirement Planning
Healthcare and long-term care costs are an important part of retirement planning and should be included in your holistic plan.
Retirement isn’t only about accumulating wealth. It’s also about protecting it from the risks that can quietly erode your financial confidence over time.
The sooner healthcare and long-term care planning become part of the retirement conversation, the more choices retirees are likely to have later in life.
