For many successful individuals and families, the idea of purchasing long-term care insurance raises a reasonable question:

 

If we've accumulated enough wealth, why wouldn't we simply pay for care ourselves?

 

It's a question worth asking.

 

After decades of saving, investing, and building financial security, you may have substantial retirement assets, a paid-off home, and sufficient income to support your lifestyle. Paying for potential long-term care expenses out of your own resources may seem like a practical alternative to purchasing insurance.

 

And for some families, it may be.

 

But there is an important distinction between having the financial resources to pay for long-term care and having a thoughtful plan for how those expenses would affect your retirement, your spouse, and your family.

 

Long-term care expenses can be unpredictable. The type of care needed, how long it lasts, and whether one or both spouses require assistance can significantly affect the financial outcome.

 

Before deciding to self-insure, it is important to understand not only the potential cost of care, but also the risks that come with assuming those costs yourself.

 

What Does It Mean to Self-Insure for Long-Term Care?

 

Self-insuring means choosing to pay potential long-term care expenses from personal financial resources rather than relying primarily on a long-term care insurance policy.

 

Those resources might include retirement accounts, taxable investments, cash reserves, real estate, or other assets.

 

For example, if you eventually need assistance with daily activities, you might pay directly for in-home caregivers, assisted living, memory care, or nursing home services.

 

Self-insuring can offer flexibility. You are not necessarily limited by an insurance policy's covered services, benefit amounts, or eligibility requirements.

 

However, you also assume the financial responsibility for those expenses.

 

If care is needed for several years, the costs generally come directly from your accumulated wealth.

 

And that is where the planning considerations become more complicated.

 

Risk #1: Long-Term Care Costs May Be Greater Than Expected

 

One of the biggest challenges with self-insuring is uncertainty.

 

You don't know whether you will need care, when that need might arise, what level of assistance will be required, or how long it might continue.

 

Some individuals need relatively limited assistance for a short period.

 

Others may require ongoing support for several years, particularly when cognitive impairment or progressive health conditions are involved.

 

The financial difference can be substantial.

 

Consider a hypothetical situation in which long-term care costs $10,000 per month.

 

That represents $120,000 annually.

 

If care continues for three years, the expense could total $360,000 before accounting for increases in care costs.

 

If care continues for five years, the total could reach $600,000.

 

These are illustrations, not predictions. Actual expenses vary considerably based on geography, care setting, services required, and duration.

 

But the example highlights an important consideration.

 

When you self-insure, you are accepting the possibility that an uncertain expense could become one of the largest financial obligations of your retirement.

 

Risk #2: Care Expenses May Affect the Financial Security of a Healthy Spouse

 

For married couples, long-term care planning should never focus exclusively on the person who may need care.

 

It should also consider the financial future of the spouse who remains healthy.

 

Imagine a couple who has accumulated $3 million in investments and developed a retirement income strategy designed to support both spouses for the next 25 or 30 years.

 

Their portfolio supports travel, housing, everyday expenses, charitable giving, and other retirement goals.

 

Now imagine one spouse develops a condition requiring several years of paid care.

 

The household may continue to incur many of its normal living expenses while also paying for additional caregiving services.

 

If the care needs become extensive, the couple could effectively be supporting two different sets of expenses.

 

Meanwhile, the healthy spouse may still have many years of retirement ahead.

 

This creates a question that is often overlooked:

 

If one spouse requires significant long-term care, will enough financial resources remain to support the other spouse's retirement?

 

A self-insurance strategy should account for both possibilities, including the potential financial impact if either spouse requires care.

 

Risk #3: You May Need to Sell Investments at an Unfavorable Time

 

Long-term care expenses rarely arrive according to a convenient investment schedule.

 

A significant care need could develop during a strong market.

 

It could also develop during a market downturn.

 

If you are self-insuring, the money needed to pay for care must come from somewhere.

 

For retirees who rely on investments to support their lifestyle, that may mean increasing portfolio withdrawals.

 

Selling investments during a period of declining market values can create additional pressure on a retirement portfolio.

 

This is related to what financial planners call sequence-of-returns risk.

 

When investments experience losses while withdrawals are being made, the portfolio may have less capital available to participate in a subsequent recovery.

 

Long-term care expenses can intensify that challenge because the withdrawals may be substantial and difficult to postpone.

 

This doesn't mean investments cannot be used to fund care.

 

It means a self-insurance strategy should consider how care expenses would be funded under different market conditions.

 

Risk #4: Paying for Care May Create Unexpected Tax Consequences

 

Another consideration is where the money will come from.

 

Not all financial assets receive the same tax treatment.

 

For example, withdrawing $100,000 from a traditional IRA generally has different tax consequences than using $100,000 already held in a bank account.

 

Traditional IRA distributions are generally taxable to the extent they represent previously untaxed amounts.

 

Larger distributions may increase taxable income and potentially affect the taxation of Social Security benefits or Medicare income-related premium adjustments.

 

Selling appreciated investments from a taxable account may also create capital gains.

 

Certain qualifying, unreimbursed long-term care expenses may be eligible for favorable tax treatment under applicable rules, but eligibility and limitations depend on individual circumstances.

 

The point is that a $100,000 care expense does not necessarily require only $100,000 of gross withdrawals from an investment portfolio.

 

Depending on the assets used and the household's tax situation, the financial impact could be greater.

 

A thoughtful plan should coordinate potential care expenses with retirement income and tax planning rather than treating them as separate decisions.

 

Risk #5: Your Wealth May Be Less Liquid Than It Appears

 

A substantial net worth does not always translate into readily available cash.

 

Some families have significant wealth tied up in real estate, business interests, retirement accounts, or other investments that may not be easy to access.

 

If a major care need arises, accessing those assets could involve taxes, transaction costs, market conditions, or timing considerations.

 

For example, selling a property to fund care may not be practical if the healthy spouse continues living there.

 

Likewise, liquidating a business interest or other illiquid investment may not be possible on short notice.

 

This is why self-insuring should involve more than reviewing total net worth.

 

It should include an assessment of which assets could realistically be used to fund care, how quickly they could be accessed, and what financial consequences might follow.

 

Risk #6: Long-Term Care Expenses May Change Your Legacy Plans

 

For some families, preserving wealth for children, grandchildren, or charitable organizations is an important financial goal.

 

Self-insuring can create a trade-off between using assets for care and preserving those assets for other purposes.

 

If long-term care expenses are relatively modest, the effect on a family's estate may be limited.

 

If care is extensive or prolonged, the financial impact could be considerably greater.

 

This doesn't mean preserving an inheritance should take priority over receiving appropriate care.

 

Rather, it means families should understand how different care scenarios could affect their broader goals.

 

For some households, that analysis may support self-insuring.

 

For others, transferring a portion of the financial risk through insurance may be worth evaluating.

 

Risk #7: Having Enough Money Doesn't Mean You Have a Caregiving Plan

 

Perhaps the most overlooked risk of self-insuring is assuming that financial resources alone will solve the challenges associated with long-term care.

 

Money can help pay for services.

 

But it doesn't automatically answer questions about where care should take place, who will make decisions, or how family members will participate.

 

If you needed assistance tomorrow, would your spouse or children know your preferences?

 

Would they understand which financial resources are available?

 

Would someone have the appropriate legal authority to manage your affairs if you could no longer make decisions?

 

Would your family know where important insurance documents, financial accounts, and estate planning records are located?

 

At Cypress Wealth Services, our Life in a Book approach emphasizes organizing the important details of your financial life so that information can be more accessible when it is needed.

 

This type of organization becomes particularly meaningful when families are navigating healthcare decisions and caregiving responsibilities.

 

The financial resources used to pay for care are only one part of a comprehensive long-term care plan.

 

Does Self-Insuring Ever Make Sense?

 

Yes. Self-insuring may be a reasonable strategy for some individuals and families.

 

Households with substantial liquid assets, dependable income, and the financial flexibility to absorb significant care expenses may determine that paying for care directly aligns with their goals.

 

Others may prefer to retain control of their assets rather than commit funds to insurance premiums.

 

However, that decision should be evaluated alongside the alternatives.

 

Traditional long-term care insurance and certain life insurance or annuity products with long-term care benefits may provide ways to address some of the financial exposure.

 

These products involve trade-offs, including premiums or other costs, underwriting requirements, benefit limits, elimination periods, exclusions, surrender charges where applicable, and the claims-paying ability of the issuing insurer.

 

Insurance does not eliminate every financial or caregiving risk, and not every product will be appropriate for every household.

 

The important consideration is whether you understand the risks you are retaining and how they fit into your overall financial plan.

 

How Can You Evaluate Whether Self-Insuring Is Right for You?

 

Rather than making the decision based solely on net worth, consider testing several potential scenarios.

 

• What happens if care is needed for one year? What if it continues for five years or longer?
• What if care costs rise faster than expected?
• What if one spouse requires care while the other continues living independently?
• What if substantial expenses occur during a prolonged market downturn?
• And what happens to your retirement income, taxes, and family goals under each scenario?

 

These questions can help reveal whether self-insuring is financially manageable, whether additional liquidity may be appropriate, or whether some form of insurance deserves consideration.

 

The objective isn't to predict exactly what will happen.

 

It is to prepare for a range of reasonable possibilities.

 

Frequently Asked Questions

 

How much money do you need to self-insure for long-term care?

There is no universal amount. The appropriate resources depend on expected care costs, location, available income, existing assets, family circumstances, and potential care duration. A financial plan can evaluate how different care scenarios might affect retirement assets and income.

 

Is long-term care insurance necessary if you have substantial wealth?

Not necessarily. Some families may have sufficient resources to fund care directly. Others may prefer insurance to help manage financial exposure, preserve liquidity, or reduce the potential impact on a spouse's retirement. The decision depends on individual circumstances and the costs and limitations of available coverage.

 

Does Medicare pay for long-term care?

Medicare generally does not cover ongoing custodial long-term care. It may cover certain qualifying skilled nursing facility or home health services under specific conditions, but ongoing assistance with daily living activities typically requires other funding arrangements.

 

Can you combine self-insuring with long-term care insurance?

Yes. Some families choose to retain part of the financial risk while using insurance to address certain expenses or care scenarios. This approach may offer a balance between retaining assets and transferring some risk, depending on the coverage terms and household's financial situation.

 

Key Takeaway

Self-insuring for long-term care can be a reasonable choice, but it is not simply a question of whether you have enough money to pay for care.

 

The potential risks include prolonged expenses, increased portfolio withdrawals, unfavorable investment timing, tax consequences, reduced liquidity, and the effect on a healthy spouse's financial future.

 

And even when the financial resources are available, families still need a plan for caregiving decisions, responsibilities, and communication.

 

The question is not simply, "Can we afford long-term care?" It is, "Can our financial plan absorb the potential cost of care without unnecessarily compromising the other people and goals that matter to us?"

 

Final Thoughts

 

At Cypress Wealth Services, we believe long-term care planning should be part of a broader conversation about retirement, family, financial security, and aging.

 

For some families, self-insuring may provide the flexibility they want.

 

For others, the uncertainty associated with potential care expenses may make insurance or a combination of funding strategies worth considering.

 

Neither approach is automatically right or wrong.

 

What matters is understanding the potential consequences before a care need arises.

 

Because the purpose of long-term care planning is not simply to determine how care will be paid for.

 

It is to help ensure that the financial decisions surrounding care reflect your wishes, consider the people you love, and support the life and legacy you have worked to build.

 

About the Author

 

Jim Bray, CFP®, is Managing Director and Senior Financial Advisor with Cypress Wealth Services. As a CERTIFIED FINANCIAL PLANNER™ professional, Jim works with individuals and families navigating retirement, wealth management, long-term care planning, and the financial and family decisions that accompany aging. His approach emphasizes thoughtful preparation and helping families consider not only how potential care may be funded, but also how changing health and caregiving responsibilities can affect spouses, children, and the people they love.

 

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, healthcare, or financial advice. Long-term care costs, coverage availability, eligibility, and individual needs vary. Any financial illustrations are hypothetical and do not represent actual client experiences or guaranteed outcomes. Investments involve risk, including the potential loss of principal. Insurance products are subject to policy terms, costs, limitations, exclusions, underwriting requirements, and the claims-paying ability of the issuing insurer. 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.