Most retirement plans are built around familiar questions.
How much will we spend? When should we take Social Security? How much can we reasonably withdraw from our investments? Will our savings last for the rest of our lives?
But there is another question that can materially change the retirement picture: What happens if one of us needs long-term care?
A long-term care event can introduce an entirely new category of expenses at the same time the household is continuing to pay for housing, food, taxes, healthcare, travel, and everyday living.
For couples, the challenge can be even greater. One spouse may require significant care while the other still needs enough income and assets to maintain their own lifestyle—potentially for many years.
Long-term care planning isn't about assuming the worst will happen. It is about understanding how a significant care need could affect your retirement and deciding in advance how you would want to respond.
What Does Long-Term Care Actually Include?
Long-term care is broader than nursing home care.
It can include assistance at home, adult day services, assisted living, memory care, and nursing home care. The common thread is often help with everyday activities such as bathing, dressing, eating, mobility, or supervision.
That distinction matters because many families assume health insurance or Medicare will cover these expenses.
Medicare generally does not pay for ongoing custodial long-term care. It may cover qualifying skilled nursing or certain home health services under specific circumstances, but it does not generally cover ongoing personal care when that is the only assistance someone needs. Medicare
As a result, a substantial portion of long-term care expenses may need to be funded through personal resources, qualifying insurance benefits, Medicaid for those who meet applicable eligibility requirements, or some combination of approaches. Admin Conference USA
Why Can Long-Term Care Have Such a Large Effect on Retirement?
Retirement planning usually assumes that your assets will support a combination of regular spending and unexpected expenses over your lifetime.
Long-term care can disrupt that equation because it may create a substantial new expense that wasn't included in the original retirement budget.
Consider a hypothetical retired couple spending $12,000 per month to support their lifestyle. Their retirement income plan was designed around approximately $144,000 of annual spending.
If one spouse later requires substantial paid care, the household may still have most of its original expenses plus the cost of care.
The mortgage or property taxes don't disappear. The healthy spouse still needs groceries, transportation, healthcare, and a place to live. Vacations and discretionary spending may change, but many core expenses remain.
The financial challenge isn't simply:
Can we afford the care?
It is:
Can we afford the care while continuing to support the retirement of the other spouse?
Long-Term Care Can Change Your Portfolio Withdrawal Strategy
A retirement portfolio may have been designed to provide income gradually over 20, 30, or more years.
A care event can accelerate those withdrawals.
Suppose additional care expenses require significantly more money from the portfolio each year. Those withdrawals can reduce the amount remaining to generate future retirement income.
The timing can matter as well.
If substantial care expenses occur during a difficult investment market, a family may need to withdraw money while portfolio values are down. That can compound the effect of market volatility because fewer assets remain available to participate in a potential recovery.
This doesn't mean retirees should keep excessive amounts of cash or restructure their portfolios solely around the possibility of long-term care.
It means a retirement income plan should consider where money for a potential care event would come from.
Taxes Can Make the Cost More Complicated
A $100,000 care expense does not necessarily mean you need to withdraw exactly $100,000 from your investments.
Where the money comes from matters.
If funds are withdrawn from a traditional IRA or another pre-tax retirement account, the distribution will generally create taxable income, except to the extent an exception or after-tax basis applies. Depending on the household's circumstances, a large distribution could also affect the taxation of Social Security or income-related Medicare premiums.
Taxable investment accounts, Roth accounts, cash reserves, and qualifying insurance benefits can have different tax characteristics.
Certain unreimbursed long-term care expenses and eligible long-term care insurance premiums may also qualify as medical expenses for federal tax purposes when applicable requirements are satisfied, although deduction limitations and individual circumstances matter.
This is one reason long-term care planning should be coordinated with retirement income and tax planning rather than treated as an entirely separate subject.
A Care Event Can Affect the Healthy Spouse Too
Long-term care is often discussed as though it affects only the person receiving care.
In a marriage, that is rarely the case.
Imagine one spouse develops dementia and eventually needs substantial supervision.
The other spouse may initially become the primary caregiver. That could reduce the amount of paid care required, but it may introduce different costs—physical, emotional, and financial.
Eventually, professional help may become necessary.
At that point, the family could be supporting two different lifestyles: care for one spouse and an independent life for the other.
The healthy spouse may live for many years after the care recipient dies. The retirement plan therefore needs to consider whether enough assets will remain to support that survivor.
This is why the question isn't simply, "Do we have enough money for long-term care?"
It is also, "What would paying for care mean for the person who doesn't need it?"
Could You Simply Self-Fund Long-Term Care?
For families with substantial assets, self-funding may be one approach.
But "we can afford it" deserves a deeper analysis.
Consider which assets would actually be used. Would money come from cash? A taxable investment account? Retirement accounts? Real estate? Would accessing those assets create taxes or force investments to be sold at an unfavorable time?
Then consider what those assets were originally intended to accomplish.
Money used for care can no longer support future retirement income, family gifts, charitable goals, or a legacy.
That doesn't mean self-funding is inappropriate. Some families may have sufficient resources and prefer the flexibility of retaining the risk themselves.
The important step is to test the strategy.
Rather than saying, "We have enough," consider modeling a range of hypothetical care expenses and durations to see how they could affect the surviving spouse and other financial goals.
Where Can Insurance Fit Into the Plan?
Insurance can be another potential source of funding.
Traditional long-term care insurance is specifically designed to provide benefits for qualifying long-term services and supports, subject to the policy's eligibility requirements, limits, exclusions, and other provisions. Some life insurance and annuity products may also offer long-term care or similar benefits.
Policies vary considerably in how much they pay, how long benefits can continue, what services qualify, and whether inflation protection is included. Age, health, coverage choices, and underwriting can also affect availability and cost. Admin Conference USA
Insurance isn't automatically better than self-funding.
Premiums have a cost. Benefits have limits. Some policies can experience premium increases, and insurance may not be available or appropriate for everyone. Admin Conference USA
For some families, insurance may transfer a portion of a financial risk they do not want to retain entirely. Others may prefer to self-fund. Still others may use a combination of personal assets and insurance.
The appropriate approach depends on the family's financial circumstances, health, age, preferences, available coverage, and broader retirement plan.
Long-Term Care Planning Is About More Than Money
Even a perfectly funded care strategy doesn't answer some of the most important questions.
Where would you want to receive care?
Would you prefer to remain at home if possible? Who would coordinate caregivers? Could your home accommodate changing mobility needs? Would you consider assisted living? If cognitive decline occurred, who would make financial and healthcare decisions?
The federal Administration for Community Living encourages families to think ahead not only about how care may be funded but also where they want to live, available community resources, advance directives, and the role family members may play. Admin Conference USA
A thoughtful plan therefore connects the financial strategy with your personal preferences.
The policy is not the plan.
The investment account is not the plan.
The plan is how the financial resources, family, legal documents, and care preferences work together.
How Can You Test Long-Term Care Against Your Retirement Plan?
One practical approach is to model different scenarios rather than attempting to predict exactly what will happen.
Start with your existing retirement plan. Then consider what would happen if one spouse required several years of additional paid care.
Where would the money come from? How would additional withdrawals affect the portfolio? What taxes might those withdrawals create? Would insurance benefits offset some of the expense? Would the healthy spouse still have enough income and assets afterward?
Then reverse the scenario and assume the other spouse needs care.
The objective isn't to forecast precisely when care will occur or how much it will cost. Those variables are unknowable.
The purpose is to identify whether a significant care event could expose a weakness in the retirement plan while there is still time to consider alternatives.
Frequently Asked Questions
Does Medicare cover long-term care?
Medicare generally does not cover ongoing custodial long-term care. It may cover qualifying short-term skilled nursing care or certain home health services when specific requirements are met. Medicare
How much should I set aside for long-term care?
There is no universal amount. Potential costs depend on the type of care, location, duration, family assistance, inflation, and other factors. Rather than relying on a single estimate, consider modeling different care scenarios within your retirement plan.
Do wealthy families need long-term care insurance?
Not necessarily. Some families may have sufficient resources and prefer to self-fund, while others may use insurance to transfer a portion of the potential risk. The decision should consider costs, benefits, policy limitations, liquidity, health, and the effect a care event could have on the broader financial plan.
When should long-term care become part of retirement planning?
Ideally, before care is needed. Planning earlier provides more time to consider funding approaches, insurance availability, housing, family responsibilities, and legal documents. Federal long-term care resources similarly encourage planning in advance. Admin Conference USA
Key Takeaway
Long-term care can affect much more than a healthcare budget.
It can change portfolio withdrawals, taxes, retirement income, family responsibilities, housing decisions, and the amount of financial security available to a surviving spouse.
The goal isn't to assume you will need years of expensive care.
It is to ask a more practical question:
If a significant care need occurred, could our retirement plan absorb it without unnecessarily compromising the financial future of the person who remains healthy?
Understanding that answer can help you decide whether personal assets, insurance, family resources, or a combination of approaches may be appropriate.
Final Thoughts
At Cypress Wealth Services, we believe long-term care planning is ultimately about protecting choices.
The choice to remain at home when practical. The choice to bring in professional assistance rather than relying entirely on a spouse or children. The choice to protect resources for the healthy spouse. And the choice to make decisions thoughtfully rather than for the first time during a crisis.
A care event may never unfold exactly the way you model it. That isn't the point.
Planning gives you an opportunity to understand how your retirement could be affected and prepare your family for the possibilities.
Because the real question isn't simply whether you can afford long-term care. It is whether your retirement plan is prepared to support both the person who may need care and the people they love.
About the Author
Ross Biesinger is a Partner and Senior Wealth Advisor with Cypress Wealth Services. Ross works with individuals and families approaching and living in retirement, helping them navigate the interconnected decisions surrounding retirement income, investments, healthcare, long-term care, taxes, and long-term financial planning. His approach emphasizes helping clients understand how the different pieces of their retirement plan work together so they can make thoughtful decisions as their needs and priorities evolve.
Aging with Dignity is an educational series focused on helping individuals and families better understand the financial, practical, and family considerations surrounding aging and long-term care.
This article is provided for general educational purposes only and should not be construed as personalized investment, insurance, tax, legal, medical, or financial advice. Long-term care needs and costs vary significantly based on the type, duration, and location of care and individual circumstances. Insurance products are subject to underwriting, premiums, exclusions, benefit limitations, waiting or elimination periods, and the claims-paying ability of the issuing insurer. All investments involve risk, including the potential loss of principal. Cypress Wealth Services does not provide legal, tax, or medical advice. Individuals should consult appropriate financial, insurance, tax, legal, and healthcare professionals regarding their specific circumstances.
