Shopping for furniture or a new car is fun, or at least it can be. Shopping for long-term care insurance is, well, less fun.

But it's an exercise you may need to go through eventually, given that Medicare won't cover the cost of long-term care. And if you don't buy insurance, you could face very high costs, depending on the type and amount of care you need.

Data from CareScout puts the yearly median cost of a non-medical in-home caregiver at $80,080 in 2025. For assisted living, you may be looking at $74,400 a year.

Gasping already? Wait, it gets worse.

If you end up needing a nursing home, you could be looking at $114,975 a year for a shared room and $129,575 per year for a private room. And these are just typical costs.

Reading between the lines, if you want a few extra amenities at a nursing home or assisted living facility, you could pay even more. You might also pay more by virtue of your ZIP code.

That's why it's a good idea to put long-term care insurance in place. But it's also important to buy it at the right age and approach that decision strategically at different ages.

Buying long-term care insurance at 50

Age 50 marks a major retirement-planning milestone: you can start making catch-up contributions to an IRA or 401(k). Reaching that age might also prompt you to consider long-term care insurance. But you may have one big question on your mind: Am I starting too soon?

Michael Murray, AIF, CPFA, and President at Peabody Wealth Advisors, says no.

"The window between 50 and 60 is really the sweet spot for long-term care planning," Murray insists. "You're still insurable, premiums are manageable, and you're making a proactive decision rather than a reactive one."

Phillip Battin, President and CEO of Ambassador Wealth Management, agrees.

"Consumers in their early 50s are generally in the best position to secure coverage because premiums are lower and underwriting is more favorable," he says. "At that stage, buyers should focus on affordability over the long term and whether inflation protection is sufficient to keep pace with rising care costs decades into the future."

Inflation is an extremely important factor to be mindful of when buying long-term care insurance at or around 50, since healthcare costs can rise faster than average costs. CareScout found that the median cost of assisted living rose 5% between 2024 and 2025 alone.

When reviewing your policy options, check for an inflation rider or cost-of-living adjustment. Just know that the more generous the inflation adjustment, the higher your premiums might be.

Of course, the tricky thing is that at 50, you may be in good enough health that it's hard to imagine ever being in a position where you'd need long-term care. But Murray says that attitude could lead you to delay an extremely important financial decision.

"Many Gen X families are already experiencing long-term care firsthand, helping aging parents while still supporting their children," he says. "Most people don’t think about long-term care until they’re in the middle of it with a parent or loved one. By then, the options are usually more limited and more expensive."

Buying long-term care insurance at 55

Many Gen Xers in their mid-50s are already facing an uphill battle with retirement planning. A good 54% think they won't be financially prepared to stop working when the time comes, according to Northwestern Mutual.

Given that only 16% of Gen Xers feel they've saved enough for retirement, according to Schroders, this cohort generally isn't in a strong position to self-insure for long-term care. So if you've reached your mid-50s without a particularly robust nest egg, it's important to look at long-term care insurance options sooner rather than later, Murray says.

"Gen X is arguably the most exposed generation when it comes to long-term care," Murray explains. "They have fewer pensions, less margin for error, and more competing financial priorities."

Even scarier is that Murray is seeing more and more cases where just a few years of care can erase decades of savings.

On a positive note, age 55 is by no means "late" in the context of buying long-term care coverage. In fact, Battin calls it the “sweet spot."

"Prospective buyers should ask themselves an important question," Battin says. "If they delay another five or 10 years, will coverage still be affordable, or obtainable at all? Health changes can quickly impact eligibility, and delaying the decision can significantly increase premiums."

Findings from the American Association for Long-Term Care Insurance (AALTCI) underscore the importance of signing up early.

The group found that in 2024, the average annual premium for a $165,000 policy with no inflation adjustment was $950 for a single male when purchased at age 55. That same policy purchased at age 60 carried a $1,200 premium instead. At 65, it spiked to $1,700.

Buying long-term care insurance at 60

At age 60, long-term care premiums can start to soar. But it's certainly not too late to buy a comprehensive policy, Battin insists.

At that point, though, Battin says the conversation shifts from optimization to risk management.

"Underwriting standards typically become more stringent, premiums increase significantly, and buyers may be forced to balance desired coverage levels with overall affordability," he cautions.

Battin also says that some buyers at 60 may want to consider hybrid life and long-term care policies.

"These products appeal to many consumers because they address the use it or lose it concern associated with traditional standalone long-term care insurance," he explains. "If care is needed, the policyholder can access benefits to help cover expenses. If not, beneficiaries still receive a death benefit."

As with buying a traditional long-term care policy, if you're considering hybrid coverage, Battin suggests favoring insurance that offers an inflation rider.

Even at 60, "Without that protection, policyholders risk purchasing coverage today that may be inadequate when they actually need care," he insists.

Buying long-term care insurance at 65

If you're first starting to shop for long-term care insurance at 65, you may be a little late to the party.

As Battin explains, "By age 65, long-term care insurance becomes a far more selective and expensive purchase. Approval is no longer guaranteed, and many applicants face significantly higher premiums or outright declines due to health conditions."

Battin also warns that if you're buying long-term care coverage for the first time at 65, you may end up "forced into partial self-funding strategies or reduced coverage levels."

That may explain why only 15% of U.S. adults ages 65 and over have long-term care insurance, according to the Center for Retirement Research at Boston College. That's a problem, because an estimated 70% of adults who reach age 65 end up needing some type of long-term care.

The AALTCI also reports a denial rate of about 38% among people who apply for long-term care insurance between ages 65 and 69.

"Unfortunately, this is also the age when the financial consequences of inaction become most apparent," Battin says. But that doesn't mean it isn't worth applying at 65. You may just need to gear up to pay more.

The bottom line: apply sooner if you want that coverage

Although buying long-term care insurance in your 50s means paying those premiums for more years, waiting is clearly risky. If you've saved millions and can fall back on self-insuring, you might consider waiting. Otherwise, you may want to make long-term care insurance shopping a priority during the first half of your 50s, along with boosting retirement plan contributions and paying off debt.

"Long-term care planning is one of the most overlooked components of retirement preparation, and, if ignored, can also be one of the most financially disruptive," Battin says. "The cost of waiting is often far greater than the cost of planning."

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• The Average Cost of Healthcare by Age and US State
• Healthcare Costs in Retirement: Budgeting for a Healthy Future

Are you worried about money? You're not alone. A recent survey by Intuit suggests that most Americans are anxious about their finances. But it's fair to say these worries can be even more pronounced for women.

Analysis from the Pew Research Center confirms that despite moves toward economic equality over the last few decades, women today are still paid less than men. And there are other unique hurdles that many women have to overcome.

Women live longer

More than 11,000 Baby Boomers are turning 65 every day, and about half of them are women. On average, women will outlive men by five years.

However, a recent survey revealed that only 70% of women say they have confidence in their retirement planning abilities.

If you're married and usually defer to your partner on financial matters, it's vital that you become familiar with your household's financial plan and make sure it meets your needs.

This plan has to support your longevity and give you confidence. If your partner has made a financial plan that you later find to be inadequate, it can spiral into a full-blown crisis.

Tax bracket changes for widows

A loved one's death is difficult for everyone, but becoming the surviving spouse can have significant financial implications, particularly for your taxes.

A grieving spouse can be hit with a sizable tax bomb because of a smaller standard deduction and being pushed into a lower tax bracket. This is commonly called the widow's penalty.

Your tax bracket determines the percentage of your income you will pay towards your taxes, all based on your earnings. Tax bracket limits are higher for married couples who file jointly than for single filers.

For example, if a married couple makes $50,000, that puts them in the 12% tax bracket. But a single person making that much would pay 22%.

A retired couple can have a very comfortable income from Social Security earnings and their retirement accounts, often landing them in the 12% bracket.

However, if one of them passes away, the surviving spouse usually doesn't have enough income to stay in that bracket.

If you are concerned about your tax situation after you or your spouse passes, there are things you can do now to help avoid paying the widow's penalty. One way to mitigate it is by converting your tax-deferred retirement accounts, such as 401(k)s or IRAs, to Roths.

When you convert these accounts, you will pay income taxes on their value, but after that, they are tax-free.

Roth retirement accounts don't have required minimum distributions (RMDs), which means if you don't need the money, you don't have to take it as income.

If you convert your accounts to Roths while you're still married and filing jointly, you will likely pay less in taxes now than you would potentially have to pay down the road if tax rates increase.

While these steps could be a great move for you, everyone's situation is different, so it is important to consult a trusted financial adviser to determine the best strategy.

Higher health care and long-term care costs

Because women typically live longer than men, their health care costs will be higher as well, and the numbers are alarming. Overall, women spend $15.4 billion more than men on out-of-pocket health care costs every year.

These higher costs are due to more than just extended life expectancy. They also have a lifetime of gynecological care, which can be very expensive, especially during childbearing years.

As women get older, the chances of them needing long-term care will also increase. Today's 65-year-olds have a 70% chance of needing long-term care in the future.

This is why I recommend looking into long-term care insurance, as this can help cover the costs of nursing home care and in-home health care, which aren't covered by Medicare.

It can also help families pay for chronic medical conditions, such as Alzheimer's.

A long-term care insurance policy can help alleviate some of the financial, emotional and physical burden of paying for your future medical needs. Planning for long-term care and medical expenses in retirement is often overlooked, but it's a critical component of any retirement plan.

What can women do now?

While the financial future for women can be daunting, there are things you can do to ease your worries.

Start with a budget and make sure that you have more money coming in than going out. If you find that is not the case, look at places you can cut back.

The income you have left over should be going to your emergency fund or retirement account.

One of the most powerful ways to boost your financial confidence and increase your financial success is to find mentors and resources to help boost your financial literacy.

Meet with a financial professional who can provide you with valuable knowledge and help create a customized plan that prioritizes your goals.

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• Three Ways to Prepare for Long-Term Care Expenses in Retirement

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

If you’re among the nearly one in four Americans who are providing financial support to an aging parent, chances are you’re feeling the squeeze — emotionally as well as financially.

That’s the conclusion of two recent surveys, which found that the cost of lending parents a hand is making it tough for many adult children to reach their own money goals and leaves some of them feeling conflicted about the help they’re giving.

About three-fourths of those helping out parents, a partner’s parents or both with expenses such as groceries, housing and medical bills said that doing so prevents them from paying off debt, building an emergency fund and achieving other key financial goals, according to a survey this summer from LendingTree, an online lending marketplace.

In addition, 38% of the respondents providing support or who expect to in the future said that either they or someone in their family had to quit a job or reduce work hours because of their caregiving responsibilities.

“In my family, my wife has had to dial back some of her hours to help her father,” says Matt Schulz, LendingTree’s chief consumer finance analyst. When you find yourself helping your parents, Schulz says, “it just takes a huge toll, both financially and emotionally.”

The pinch can be especially painful for those who are helping aging parents while raising children, according to a September survey from Allianz Life, a financial services provider.

In the survey, roughly six in 10 of the caregivers with children younger than age 18 said they had reduced or stopped contributing to their retirement plans as a result of the assistance they’re providing.

That could backfire. “Stopping contributions to your retirement can magnify problems for your kids [when they grow up] because they may then need to help you in the future,” says Kelly LaVigne, vice president of consumer insights at Allianz Life.

Adult children who are helping their parents, or plan to, are of two minds about it, LendingTree learned. Eighty-four percent believe providing financial support is their responsibility, but nearly half admitted feeling resentment about the financial burden.

“This shows the tug-of-war going on,” Schulz says. “When you’re in the trenches managing an elderly parent, there’s a side of you that is grateful you have the opportunity and financial wherewithal, but there’s also the side that’s like, 'Man, this is really hard, and I wish I weren’t in this position.'”

If caring for a parent is putting a strain on your finances, experts suggest taking these steps:

Get a grip on debt. Nearly six in 10 adult children helping aging parents have gone into debt as a result, LendingTree found. More than half borrowed at least $5,000; 13% have taken on $25,000 or more in debt.

It’s imperative to whittle down your debt, especially if you borrowed via a credit card (average rate: 22%), experts say. A smart first step: Ask your issuer for a lower rate — a strategy that LendingTree found is successful 83% of the time.

Let others help. Talk to your siblings to see whether they can chip in. It’s also a good idea to talk with a financial adviser. Even a one-time session with a fee-only planner can help you review spending, manage debt and identify sources of additional funds for caregiving costs. Find one at NAPFA.org.

Tap community resources. The National Council on Aging’s free online Benefits Checkup tool lets you type in a ZIP code to find local programs that could help your parents (or you) better afford food, housing, health care and more.

If you’re not helping out parents now but think you might need to provide assistance in the future, talk with them about their financial situation soon.

Says Schulz, “It’s not an easy thing to do, but it’s so important, because the more you know, the better able you are to start thinking through what you may need to do going forward.”

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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When it comes to retirement planning, there’s one financial wildcard, one blind spot that can upend the best-laid plans: the high cost of long-term care — if you ever need it.

Like many people, this reporter has not given much thought to the cash cushion or funding vehicles to pay for long-term care (LTC) later in life. My wife has an LTC insurance policy she got through work 15 years ago that will offset her costs. However, despite diligently building a retirement nest egg, I never really investigated whether I would need long-term care, how much it would cost, and, more importantly, how I would pay for it. Like most folks, I have read stories citing cost guesstimates based on the “average” person. But I’ve done little planning specific to long-term care.

Until late October, that is. That’s when I decided to test run an AI-powered platform called Waterlily that uses artificial intelligence (AI) to predict long-term care needs — decades before they happen — as well as estimate the cost of care and help people find the most optimal LTC insurance policy. These long-term care predictions, according to Waterlily, are powered by an AI platform that compares an individual’s information, like mine, with similar data from 50,000 families and draws from a dataset with over 500 million data points to personalize the LTC predictions.

Waterlily: the AI powered tool predicts long-term care needs

It was an eye-opening exercise that went by in a New York minute — not hours, days, or weeks. In a matter of seconds, after filling out a three-minute intake form that collected information on my personal health, prescriptions, family health history and other relevant data, the Waterlily platform spit out a report to me via email that quickly got the attention of my future self.

So, will I need long-term care one day? Unfortunately, yes, according to Waterlily, which uses prediction models trained on the LTC journeys of other families.

I am currently in my early 60s. Waterlily found that there is a 70% chance that I’ll require long-term care (that’s higher than the 56% odds for the average 65-year-old, Waterlily says, but in line with the 70% of Americans who will eventually need LTC). Waterlily’s AI-driven analytics tool also weighs in on when my care will start. When is that? When I’m 86 years old.

My long-term care needs will last 4.2 years, Waterlily estimates, with a mix of care that starts at home with help from family members (which is less costly), then moves to an assisted living facility, and finally to a nursing home that provides full-time care.

Waterlily predicts my long-term care costs

While hearing that I’ll need care in the later stages of my life was not totally unexpected, it was nonetheless sobering. It was a reality check.

The Waterlily analysis didn’t stop there. The next part of the analysis dives into a topic that keeps Americans up at night: the cost of LTC. And AI doesn’t pull any punches: LTC is not cheap. The $64,000 question is: how much? And, of course, how do you pay for it?

Most people age 50 and older say they are not confident they can pay for a nursing home (62%), assisted living (58%), or home care (51%), according to the University of Michigan’s Institute for Healthcare Policy & Innovation.

No doubt, a long-term event can be financially ruinous. In fact, Lily Vittayarukskul, CEO and founder of Waterlily, says a driving force behind her starting the company was her family’s financial hardship during her teenage years that resulted from providing long-term care to her aunt, diagnosed with terminal colon cancer. “Navigating those two years nearly bankrupted us,” said Vittayarukskul.

Funding long-term care is a costly endeavor. So, getting your arms around the cost sooner rather than later can give you time to plan for and fund any care needs with greater confidence.

My potential costs are staggering. The AI algorithm projected my cost at $1.48 million in inflation-adjusted dollars, with 60% of the cost attributed to an estimated 18-month stay at a full-care facility starting at age 89.

Waterlily maps out a funding plan for long-term care

The final piece of the puzzle is Waterlily’s analysis of how to fund this large potential expenditure later in life.

One myth is that Medicare will cover long-term care costs. In fact, 58% of Americans think Medicare will provide LTC coverage, according to the 2025 Nationwide Retirement Institute Long-Term Care Survey. But Medicare’s LTC coverage is limited and short-term, and does not provide the extended, day-to-day support aging Americans will eventually need, the survey noted.

Waterlily helps you build a plan to pay for LTC. Funding options include self-funding, or using savings to cover LTC bills, buying LTC insurance, as well as using other income sources, such as an annuity.

I opted for a hybrid approach in my hypothetical analysis, using a combination of personal investments and an LTC insurance policy to cover as close to 100% of the total estimated LTC cost as possible.

Waterlily’s platform runs the funding numbers for you. You plug in your funding preferences, and it does the computations. I started with self-funding, earmarking $200,000 of retirement fund assets at a 5% annual return rate with 20-plus years of growth runway. But Waterlily ran the numbers and seconds later informed me that self-funding would only pay for 52% of my projected LTC expenses.

Why getting a high return on investment for LTC insurance can improve retirement outcomes

The next step was using Waterlily’s AI platform to help me close the funding gap by finding an LTC insurance policy that could capture the most coverage in total dollars for my initial lump sum investment, which Vittayarukskul dubs “ROI,” or return on investment.

This is the part of the process where the power of AI shines.

The test. I opted to see whether a $100,000 LTC policy would close my funding shortage. (Of course, this is not an insignificant-sized investment and may not be an option for all Americans.) Waterlily’s new offering, “Quote-and-Apply,” then used AI to crunch and analyze hundreds of thousands of insurance policy configurations and half a billion data points to find the most “mathematically optimal” policies to fit my personal situation. “It calculates the precise return on every premium dollar on the policy you’re considering purchasing,” said Vittayarukskul.

The policies presented are ranked by ROI, highlighting those that will generate the biggest dollar amount of total coverage for my $100,000 policy. Waterlily’s analysis also lets you know if your application is likely to be accepted or rejected for coverage by insurance underwriters based on your medical information.

The results. In less than a second, Waterlily found a $100,000 policy with a 494% ROI and total coverage of $574,000. In my hypothetical example, the combination of self-funding and buying an LTC policy covered 91% of my projected LTC cost. So, in just a few minutes, I was able to determine the age at which my care would begin, how long it would last and its cost. The system also provided a funding plan to cover the costs.

Since my analysis was journalistic in nature, I did not use Waterlily’s Quote-and-Apply system — which skips or pre-fills 70% of application fields based on what’s already known about the applicant — to apply for coverage.

“Families can conduct a mathematically complete analysis of hundreds of thousands of policy permutations, a process that is physically impossible for a human, all in a span of a second,” said Vittayarukskul. “(They can) instantly arrive at (LTC insurance) options with the highest return on investment personalized to an individual or couple.”

LTC plans for couples. Vittayarukskul notes that joint LTC policies that include both spouses can often be less costly than individual ones.

The Waterlily AI platform will also analyze existing LTC policies you might have. For example, Waterlily factored in my wife’s LTC policy with a self-funding investment of $200,000. The system calculated that she would be able to cover 68% of her inflation-adjusted total LTC costs of $1.72 million.

Privacy. As with any AI platform, you should be careful when handing over personal health and financial data. Waterlily's privacy policy states that you may request the deletion of your data by contacting the team via email at hello@joinwaterlily.com.

The University of Michigan's long-term care study found that only 11% of adult respondents said they had bought long-term care insurance.

Vittayarukskul says Waterlily is currently offering this analysis free to consumers on their website, although there is a charge for use by financial advisers.

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Americans have a good chance of living well into old age these days, which is something to cheer about.

But it also raises serious concerns for those who haven't planned for the possibility of long-term care needs.

And the demand for those needs has never been greater.

Take a trip back through the history of aging and the numbers are startling. From 2010 to 2020, the number of individuals 65 years and over saw the largest and fastest growth in any decade since 1880 to 1890, reaching 16.8% of the total U.S. population, according to the Census Bureau's The Older Population: 2020 report.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

Projections are that by 2050, the 85-plus age group will number 19 million, making it 24% of older adults and 5% of the total population.

This longevity is wonderful for those who manage to maintain good health in their later years. But an extraordinarily large percentage of people will need some form of long-term care, which could include in-home assistance, community and assisted living or nursing home care.

According to the federal government's Administration for Community Living, someone who turns 65 today has nearly a 70% chance of requiring long-term care at some point during their remaining years.

Unfortunately, long-term care is not covered under Medicare, and too many Americans and their families aren't prepared to pay for that care, which can make a sizable dent in any retiree's assets, possibly leaving little to nothing for the person's heirs.

Just how expensive is long-term care?

As an example, the median cost in the United States for an assisted living facility in 2025 is $ $6,077 a month, according to Genworth and CareScout. A semi-private room in a nursing home is $9,555 a month.

Money disappears fast at those rates.

Options for paying for care

This is why it's crucial to consider long-term care needs when planning your retirement and set aside money to pay for them, just in case.

For a long time, one of the most popular ways to prepare was through a long-term care insurance policy. But those policies had a serious downside because they were a use-it-or-lose-it proposition.

If you actually needed care, the policy was there, helping you avoid raiding the entirety of your savings. But if it turned out you never needed long-term care, then those monthly payments, in a sense, had been for naught.

You or your beneficiaries didn't receive any kind of refund. (In fairness, that's much the way car insurance works; it's there if you need it, but provides no benefit if you don't.)

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Fortunately, there are alternative long-term care insurance options that are more flexible, allowing you to avoid that use-it-or-lose-it approach.

One option is a hybrid life insurance and long-term care insurance policy. With such a policy, if you end up needing long-term care, you can use the death benefit (the money your beneficiaries would have received when you die) to pay for it.

But if you never need long-term care, then your beneficiaries receive the full death benefit payout when you die.

Some policies also offer a cash benefit that allows you to take money out to use at your discretion for expenses other than long-term care.

Another option is to self-fund by setting aside a portion of your savings to be specifically dedicated to paying for long-term care. This could be through a separate retirement account.

With this approach, you don't pay any premiums, and if you don't need to use the money, it will be there for your beneficiaries.

Something else to consider. Let's say you buy a long-term care insurance policy using money from a tax-deferred account, such as an IRA, 401(k) or 403(b). You pay taxes when you withdraw money to pay the premium.

But if you then draw on the policy to pay for long-term care, the portion used to pay for the long-term care is treated as an accelerated benefit and is tax-free.

Putting a plan in place

Each option for addressing long-term care has its own pros and cons. For example, the premiums for a hybrid policy typically will cost more than the premiums for a use-it-or-lose-it policy.

The key is to begin thinking about this early, long before the need arises. A financial professional who works with retirees and near retirees can help you understand the options and assist you in making a decision that meets your needs, goals and budget.

Long-term care is a legitimate concern for anyone in or approaching retirement years, but with the right planning, you can limit the hit to your assets and feel more confident about the future.

Ronnie Blair contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

You've worked hard, saved wisely and planned for a fulfilling retirement. But what if the unexpected happens — early-onset Alzheimer's or another serious health event — and changes your day-to-day life?

We've heard it often: "It wasn't supposed to happen this way."

We don't plan to need long-term care, but we do need to plan how we would pay for it, just in case.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

One of retirees' most significant challenges is covering the cost of long-term care (LTC). It's not just about dollars; it's about preserving independence, protecting your family and ensuring your financial plan stays on track.

Let's break down what LTC is, how much it costs and your options for funding it.

What is it?

Long-term care refers to the services and support needed when a person can't perform at least two activities of daily living, such as bathing, dressing, eating or getting in and out of bed.

It's not typically covered by standard health insurance or Medicare. While Medicare might pay for up to 100 days of skilled nursing care, it doesn't cover custodial care, such as help with daily living over the long term.

Most of us will need some form of care. According to LongTermCare.gov, 70% of people age 65 and older will require LTC during their lifetimes, and 20% will need it for five years or more.

The cost of care

LTC costs vary depending on location and the type of care needed. Nationally, the median annual cost of a private nursing home is $127,000, according to Genworth and CareScout, but it ranges widely by state. In Alaska, for example, the cost is $364,000 a year.

Those who would like the same private nursing services at home 24/7 could pay as much as double the private nursing home rate.

Part-time home care also isn't cheap — roughly $65,000 a year for 40 hours a week — but it's more flexible.

The cost depends on how many hours a nurse is needed. Some people start with home care and transition to a facility; it depends on needs and preferences.

These costs are rising faster than the inflation rate. At an average annual increase of about 5.5%, they can quickly derail even the best-laid plans.

Types of long-term care

There are four main types of LTC, listed from least to most costly:

• Home care. Part-time skilled or unskilled services delivered in your home.
• Assisted living. Support with daily activities in a residential setting (usually without 24/7 medical supervision).
• Skilled nursing facilities. Twenty-four-hour care for those with significant medical needs.
• 24/7 at-home nursing care. Staffed 24 hours a day for those with significant medical needs who want to stay in their homes.

Having a plan can help you protect and maintain control of the care you receive.

How to fund long-term care

Understanding potential funding sources is a wealth-planning activity. We suggest working with your wealth manager or advisor to develop a plan.

Here, we explore some options, which can be combined to meet your funding needs.

Rely on personal savings and assets

Some people choose to self-fund their LTC needs. If you go this route, ensure you've set aside enough to cover three or more years of care — at today's rates, that could be $400,000 or more.

Sources might include retirement accounts (401(k), IRA, Roth) and taxable investment accounts.

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If you have a health savings account (HSA), it's a triple-tax-advantaged way to cover qualified care costs.

Sell your home

If you live alone when you need LTC and don't need it, selling your home to move into a nursing home facility is easy. If someone else still lives there, other options exist to unlock the equity.

Get a reverse mortgage

Today's reverse mortgages are safer than ever and can efficiently tap into equity while you stay in your home. Depending on your needs, there are several options from which to choose.

Buy traditional LTC insurance

Long-term care insurance policies are designed to cover LTC costs. Premiums are lower if they're purchased in your 50s or early 60s and are influenced by age, health and gender.

Policies typically cover one to five years of care. Inflation protection riders help your benefit keep pace with rising costs.

Premiums can be tax-deductible depending on your age and income.

Employer group plans might offer lower-cost options with a higher probability that the insurance carrier will cover you.

It's critical to understand that premiums can increase over time, so this isn't a "set it and forget it" option.

Consider hybrid insurance policies

Hybrid policies combine life insurance with LTC benefits, allowing you to access your death benefit early to pay for care. Linked-benefit policies provide a pool of LTC benefits and a residual death benefit.

These are appealing because you (or your heirs) can receive money back from the policy even if you never need LTC. While more expensive upfront, the premiums are fixed and won't increase.

Look at synthetic LTC plans

Can't get LTC insurance — or prefer not to? Some clients opt for a synthetic LTC strategy using low-cost variable annuities. Investment-only variable annuities (IOVAs) offer tax-deferred growth with flexibility to withdraw funds if care is needed.

IOVAs can be a great fit if you're ineligible for insurance due to medical conditions, and they pass assets to heirs if not used.

Apply to government programs

There are also several government programs, such as Medicaid, for those who need financial assistance.

Long-term care planning is about much more than insurance or assets. It's about ensuring your care aligns with your values and lifestyle, while minimizing the burden on your family.

Your CERTIFIED FINANCIAL PLANNER® and wealth manager can help you explore the best funding options based on your unique situation. Build an LTC plan into your long-term plan — so you can focus on living well today, with peace of mind about tomorrow.

Mallon FitzPatrick leads Robertson Stephens' Wealth Planning Team and delivers comprehensive wealth planning solutions for high-net-worth and ultra-high-net-worth clients. He collaborates with clients to develop a strategy that integrates tax planning, risk management, philanthropy, liquidity and balance sheet management, estate planning and investments. Ultimately, the client is provided with a cohesive wealth plan that helps increase the likelihood of experiencing good outcomes, meets their objectives and aligns with their preferences.

Related Content

• Four Tax-Friendly Ways to Pay for Long-Term Care Insurance
• In Your 50s? We Need to Talk About Long-Term Care
• Your Home + Your IRA = Your Long-Term Care Solution
• Will My Children Inherit Too Much?
• Are You a High Earner But Still Broke? Five Fixes for That

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Retirement planning has to change. We're living longer. Social Security is under pressure. Long-term care is costly and getting even more expensive.

Think of your retirement savings as not only your 401(k), IRA and other qualified savings, but also the value of your home. And forget about rules of thumb. Think instead about refinements that make your plan your own.

What's your base plan?

In my previous two articles — Your Home + Your IRA = Your Long-Term Care Solution and What if You Could Increase Your Retirement Income by 50% to 70%? — I described IRA4Income, which delivers more income to meet budgeted expenses along with liquid savings to enable, for example, the coverage of typical long-term care costs.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

We explained how to achieve these results by using financial products that are "off the shelf":

• An IRA account invested 50/50 in fixed income and stock investments
• Lifetime income annuities with income starting immediately (single premium immediate annuity, or SPIA) or in the future (qualified longevity annuity contract, or QLAC)
• A home equity conversion mortgage (HECM) that generates income and liquidity

Those pieces aren't exotic, but with our approach, called IRA4Income, we provide an individual with a "base plan" built around an allocation among and between asset classes, put in place with economic assumptions, such as:

• Rates of return on investments
• Personal planning choices, such as the percentage of increase in income
• Current interest rates based on a survey of annuity and HECM contracts

To measure the value of this planning model, we compared our results to two ends of the retirement spectrum:

• A single premium income annuity (SPIA) that would provide all guaranteed income but no liquid savings
• Investment-only plans with no guaranteed annuity income

Both of those and IRA4Income are based on a consistent set of assumptions.

While quite different in design but with consistent assumptions, the IRA4Income plans provide high starting income, they continue for life, and they have liquid savings late in retirement when the money will most likely be needed to cover long-term care.

Why do you personalize?

As the results below show, a base IRA4Income plan provides attractive results in the two areas we're working to improve: starting income and liquid savings at age 90.

Once you have a base plan that delivers the income and liquid savings, an adviser can help you modify it to better meet your personal objectives. The answer, unlike certain planning methods, is not simply to spend less.

Below, I provide examples of plan modifications, again with an emphasis on starting income and liquid savings.

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How do you personalize?

You can adjust income. A relatively simple way to adjust your starting and ongoing income is to revise the inflation protection assumption. Set out below is an example at different ages of what a change in the percentage increase can provide.

You can manage risk. In refining your plan, do you assume lower or higher assumed rates of return? If you aim for the high starting income you may want to use the base plan assumption of 8%, or a lower rate if you want to take less risk. The differences are shown here.

You can manage your legacy. Annuities are an important tool to create lifetime income in a plan. One feature of these lifetime annuities can be a payout to your beneficiary. You may want to provide beneficiary protection on early passing, as evidenced in the following table.

You can minimize taxes. Retirees who use just one source of savings to fund their retirement — their IRA or 401(k) — will pay taxes when distributions are made. Drawdowns from a HECM line of credit are not taxable and provide some tax benefit.

If taxes are a major consideration, you might consider using a portion of personal (after-tax) savings and reduce taxable portion, as seen here.

Now, create your options

The benefits of IRA4Income include increased income and more liquid savings. This combination of your IRA and your home can increase your income from your IRA-based planning by 50% to 75%.

While that increase sounds great, you have the ability to easily stress-test those results and anticipate long-term care or other events that can be planned for.

To get started, order an IRA4Income base plan as a great starting point for future refinements like those mentioned above.

Related Content

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• Transform Your Retirement Plan With This Powerful Combo
• How Combining Your Home Equity and IRA Can Supercharge Your Retirement
• Is Your Retirement Solution Hiding in Plain Sight?
• How Your Home Can Fill Gaps in Your Retirement Plan

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

It's a question we hear often from financially confident retirees: "I've done well. I have more than enough saved. Why would I need a long-term care plan or long-term care insurance?"

We get it. For many, traditional long-term care (LTC) insurance feels like a gamble — you pay in and hope you never use it. If you don't end up needing care, it can feel like wasted money.

Then there are the asset-based options — LTC benefits built into life insurance or annuity contracts. These plans can offer significant value.

Example: A healthy 59-year-old who funds a policy with $100,000 could secure $650,000 in LTC benefits by age 80, thanks to 3% compound inflation protection for life. Even if care is never needed, a $108,000 death benefit goes to heirs. Underwriting is often easier, too.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

But some still hesitate, thinking that money might perform better in the market. And many don't have a plan for their long-term care, period — with or without insurance.

Taking care of your spouse

Even couples with substantial assets can face tough choices when one partner needs care.

Without a plan:

• The healthy spouse may have to cut back their lifestyle or dip into savings
• Caregiving often falls on them — physically, emotionally and financially

Caregivers often feel sadness, anxiety and guilt, combined with the grief of watching a partner change, according to LifeCare Advocates.

And it's not just emotional. The landmark Caregiver Health Effects Study found caregiving strain can be deadly: Spouses under stress were 63% more likely to die over four years than those who weren't caregiving.

The physical toll is real:

• 46% of caregivers say it impacts their health
• Fatigue, sleep loss and injuries are common
• Many skip their own doctor visits due to time constraints and stress

Protecting your kids

Many people say, "If something happens, my kids will help." And they probably will.

But have you thought about what that really means?

Fifty-three million Americans are unpaid caregivers, often while holding down full-time jobs, according to insurance company Guardian.

Most caregivers are in their 30s, 40s and 50s, balancing careers, caregiving and raising children. Many belong to the "sandwich generation," supporting aging parents and kids at the same time.

Ask yourself:

• Should your daughter reduce her hours — or risk her career — to help with your care?
• Should your son miss his child's soccer games to coordinate home health visits?
• How will stepping back from work affect their ability to save for retirement or college?

Caregiving hits hard

Consider these statistics, from Guardian Life Insurance's Standing Up and Stepping In study:

• 20% of working caregivers have taken a leave or demotion
• 27% provide 30-plus caregiving hours weekly, yet most don't feel safe discussing it at work
• Only 1 in 4 report good mental health, and nearly half say caregiving strains their relationships and quality of life

And the costs keep climbing:

• 70% of individuals turning 65 today could face a long-term care event, according to LongTermCare.gov
• According to the California Partnership for Long-Term Care, the cost of care could increase by at least 4.6% annually

Many parents hope to leave a financial legacy, but unintentionally leave a logistical and emotional burden.

Sometimes families delay professional help, not because they can't afford it, but to protect an inheritance. That can create tension, especially when caregiving falls unevenly among siblings.

So ask yourself:

• Would you rather leave your children money or memories?
• Do you want them to be with you — or to manage you?

A care plan — whether self-funded or insured — doesn't just protect assets. It protects your kids' health, relationships and future.

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When care is prefunded, it's easier to say yes to help — without guilt or second-guessing. Your loved ones aren't scrambling. You've already made the hard decisions.

Two different outcomes

For me, long-term care insurance gave my dad the freedom to live life on his terms. He knew his care was covered, which meant my mom could continue to be his wife — rather than becoming his nurse — and their savings could be used for joy, not just medical bills.

For my colleague Caprice, an insurance professional, it was different. When her mom needed care, there was no plan. Caprice and her sister stepped in, each writing monthly checks to cover assisted living. It was done with love, but it came with stress and sacrifice.

Two different families. Two different outcomes. Same desire — to care for the people we love with dignity, and without regret.

Final thought

You may never need long-term care. But if you do, wouldn't it be better to have a plan so that your loved ones can focus on being there, not doing everything?

Even if you have plenty of money to pay for care, you still need to develop a plan so that everyone is on the same page and knows where to turn for help.

This isn't just about whether you can afford to self-insure. It's about whether you want to.

A good adviser can help you:

• Understand today's and tomorrow's care costs
• Assess your personal risk
• Explore whether traditional or asset-based coverage fits your goals

More than that, they'll help you build a plan that:

• Preserves your relationships
• Protects your lifestyle
• Keeps your options open

Because when the time comes, your spouse should stay your partner, your kids should stay your kids, and your legacy should stay intact.

It's not just about you. It's about everyone who loves you.

Caprice Torrisi, a licensed insurance professional at Vitality Investments, contributed to this report.

Hypothetical examples used are for illustrative purposes only.

Investment advisory services offered through Brookstone Wealth Advisors, LLC (BWA), a registered investment advisor and an affiliate of Brookstone Capital Management, LLC. BWA and (insert your DBA name here) are independent of each other. Insurance products and services are not offered through BWA but are offered and sold through individually licensed and appointed agents.

Related Content

• In Your 50s? We Need to Talk About Long-Term Care
• How to Manage Longevity Risk in Retirement
• Long-Term Care Insurance: 10 Things You Should Know
• Nursing Home Care: What to Do When Medicare Won't Pay
• Financial Adviser's Defense of Annuities: They're Just Misunderstood

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Few things can disrupt a retirement like the need for long-term care.

Long-term care comes into play when you need help with daily living activities such as bathing, eating or dressing.

The cost of care can vary by state and facility, but Genworth and CareScout estimate the national average cost for a semiprivate room in a nursing home in 2025 is $9,555 per month, or $114,660 per year.

By 2045, that cost is expected to jump to $17,258 per month, or $207,096 per year.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

And that is for one person — double the cost if a husband and wife need care at the same time. This is a problem for every generation.

Here's how you can prepare for long-term care costs by age.

People younger than mid-50s

Younger people who need life insurance for their family should look at long-term care riders as an add-on — this can help them later in life.

I usually recommend my younger clients consider a mix of term and permanent whole life insurance to help pay for the kids' college or pay off the mortgage if one spouse dies. I also recommend adding on the long-term care rider.

The long-term care rider allows the insured to use some of the life insurance death benefit for long-term care costs, assuming the insured qualifies for long-term care (usually defined as the inability to perform two out of six daily living activities).

I usually find the cost of the rider to be small relative to the premium, but that will depend on the policy and the client's age and health.

Either way, I think this is a nice two-part solution at least worth reviewing — younger people have the life insurance they need for their family, and the long-term care rider adds protection they may need in the future.

People in their mid-50s

Later to middle-aged people may find whole life insurance to be cost prohibitive. Here, I recommend my clients look at hybrid long-term care solutions. These are life insurance policies that have an extra kicker for long-term care costs.

Hybrid policies have several benefits:

• They come with guaranteed premiums — the insurance company cannot raise the cost
• They have a return-of-premium feature —if you don't use the coverage, you can usually get back a healthy amount of your premium
• There is also a death benefit if you don't use the long-term care benefits

The downside is the premium commitment may be high or higher than some anticipated. You may not be able to buy all the coverage you want, but then again, some coverage may be better than no coverage.

There is also creditor risk — the insurance company could become insolvent — so you want to work with a reputable company.

I advise clients to schedule their hybrid insurance premiums during working years so they can have a paid-up policy by retirement. Or they can purchase a one-time lump sum and be done with it.

The law now allows you to transfer old whole life insurance policies tax-free into hybrid policies, via a 1035 exchange. Medical underwriting is needed for the new policy.

People in their 60s

Long-term care insurance quickly becomes less attractive as we age — the cost can be quite high. There may also be medical conditions that preclude getting coverage.

Traditional long-term care policies may be an option. These are pay-as-you-go policies. However, the premium is not guaranteed, meaning the insurance company can increase it.

If you are looking at a traditional long-term care policy, you may want to review your state's partnership plan. Partnership plans allow you to exclude the benefits paid from a traditional long-term care policy from Medicaid eligibility rules.

For example, if your state partnership long-term care plan paid $200,000 in long-term care benefits, then $200,000 of your assets — IRA, 401(k), bank account — are excluded from the Medicaid eligibility calculation. That means you don't have to spend down all your assets to qualify for Medicaid.

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Partnership plans are not perfect. Some states have few participating insurance carriers. Certain features also need to be included, such as inflation protection, which is helpful, but can be expensive in your 60s.

I think at this age, it may come down to self-insuring most of the risk and looking at some scaled-down long-term care insurance to cover the worst-case scenario, like an extended need for care.

Summing it up

Ignoring the need for long-term care may cost your future self or put a burden on those around you. Self-insuring the cost — using your own assets — may be a viable plan for some.

But the risk is unknown — what if you need care for 10 years? What if your spouse is unable to help? What will the cost look like by the time you need care?

Women face a unique challenge since they may live longer, and living longer increases the odds for long-term care.

There are a lot of unknowns. For these reasons, no matter our age, we need to start having a conversation and developing a plan.

For more information, email the author at maloi@sfr1.com or register for an upcoming Long-Term Care Webinar on July 15 or July 22.

Investment advisory and financial planning services are offered through Summit Financial LLC, a SEC Registered Investment Adviser, 4 Campus Drive, Parsippany, NJ 07054. Tel. 973-285-3600. This material is for your information and guidance and is not intended as legal or tax advice. Clients should make all decisions regarding the tax and legal implications of their investments and plans after consulting with their independent tax or legal advisers. Individual investor portfolios must be constructed based on the individual's financial resources, investment goals, risk tolerance, investment time horizon, tax situation and other relevant factors. Past performance is not a guarantee of future results. The views and opinions expressed in this article are solely those of the author and should not be attributed to Summit Financial LLC. Summit is not responsible for hyperlinks and any external referenced information found in this article.

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• 10 Things You Should Know About Long-Term Care Insurance
• How to Manage Longevity Risk in Retirement
• Deduct Expenses for Long-Term Care on Your Tax Return
• One Retiree's Story of How She Built Her Retirement Nest Egg

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Retirement planning has as much to do with amassing and spending your nest egg as it does with determining your health care needs.

Nobody wants to think about getting ill or injured when they get old, but it’s inevitable for many. How inevitable?

Roughly 70% of Americans age 65 and older will require long-term care at least once in their lifetimes, according to the U.S. Department of Health and Human Services. That encompasses everything from a nursing home to in-home care. The amount of care a person needs depends on their unique circumstances, but either way, it isn't cheap.

A semi-private room in a nursing home, on average, costs $9,581 per month, while a private room is $10,798 a month, according to Genworth’s 2025 Cost of Care survey. A home health aide will cost you $6,673 per month.

Even if you are in perfect health during retirement, it can be expensive. Fidelity Investments estimates that a 65-year-old retiring this year will spend $172,500 in health care. That’s up 4% from $165,000 in 2024.

In 2002, the first year Fidelity put out an annual estimate, the cost was $80,000. That doesn't account for any unforeseen illnesses or injuries that might require additional care.

“Health is wealth,” says Nilay Gandhi, a senior wealth adviser at Vanguard. “Without health, there’s not much anyone can do, regardless of how much wealth they have. Health care expenses are one piece of the puzzle for retirees and pre-retirees.”

1. Decide what kind of health care you want in retirement

To prepare for health costs, Gandhi encourages investors and their financial planners to follow a multistep process (PDF) that begins with determining the type of care you want and how much you can afford.

If you need round-the-clock assistance, do you prefer it at home or within a facility? If you get injured or ill, do you want insurance to cover the cost of care, or do you want to pay for it out of savings?

Once you decide on the type of care, create the necessary documents to ensure your wishes are met if you're ever incapacitated and can’t make your own decisions.

Some of those documents include a will, a financial power of attorney and an advance health care directive or living will.

After that, it's time to figure out how you’ll pay for it. You have options. Insurance is one; using your savings is another.

2. Know what Medicare does and doesn't cover

Any health planning for retirement should first factor in Medicare, which kicks in at age 65. Most retirees will have to choose between original Medicare or Medicare Advantage, which will have a direct impact on health expenditures.

Original Medicare tends to have what Vanguard says are substantial deductibles, as well as co-insurance. There is no limit on what out-of-pocket costs you might owe. Since Medicare doesn't cover dental, vision and hearing exams, you'll need a supplemental Medigap insurance plan.

A Medigap insurance plan is health insurance that private companies sell to help cover some of the costs that an original Medicare plan does not cover.

Another option is a Medicare Advantage Plan, which is sold by a select group of private insurers and replaces original Medicare coverage. These plans tend to have lower costs and more benefits, but the doctors within the network can be limited.

"If cost is the primary concern, Medicare Advantage will usually lead to lower health care costs over time (though it may be more expensive in specific years in which you experience poor health outcomes)," according to Vanguard. "Original Medicare with a supplement will tend to provide a more flexible choice of health providers and more predictable costs, regardless of your health status in any particular year."

3. Decide when insurance makes sense

Long-term care insurance is a popular choice because it makes it easy. You pay a monthly premium, and if you ever get sick, your insurance covers it. You get peace of mind, but there’s a catch.

Depending on your age and health, it can be pricey, ranging from $100 and up per month. The older you are, the higher the monthly premiums.

There are also limitations on what it covers. For it to kick in, you need to be considered chronically ill, unable to perform at least two activities of daily living (ADLs) without assistance or experiencing cognitive decline and requiring supervision.

Something to keep in mind: While prices are supposed to be the same over time, it's not uncommon for premiums to jump.

Long-term care insurance has its perks
There are tax benefits with LTC insurance. For one, the benefit payout amounts aren’t taxed. Some premiums are deductible as a medical expense if they contribute to medical expenses exceeding 7.5% of your adjusted gross income. As you get older, the deductible amount of the premiums increases.

You can purchase traditional LTC insurance or hybrid LTC insurance. With the latter, the LTC benefit is part of a life insurance policy or annuity. The benefit is always paid, and premiums are guaranteed. If the LTC insurance coverage is not used, it is transferred as a death benefit or cash value if it is an annuity.

It's also more expensive, easily over $1,000 per month, depending on the bells and whistles.

According to Vanguard, you would benefit from LTC insurance if:

• You can afford the premiums.
• Your family or trusted friends can handle the paperwork and claims process for you.
• You crave peace of mind that comes with insurance.
• You are healthy enough to meet underwriting guidelines.

4. Determine if sharing the costs is a better option than insurance

If you're healthy, your family history is void of any chronic or debilitating illnesses or diseases and you’ve saved for your retirement, long-term care insurance might not be the best option.

Alternatively, you can share in the costs beyond what Medicare covers out of pocket. There are a few ways to do that, including an annuity and a Health Savings Account.

With an annuity, you pay an upfront lump sum and, in return, get a lifetime of regular payments which you can use for medical expenses.

How much the annuity costs depends on your life expectancy, whether you have inflation protection, and whether there is a guaranteed minimum payment amount. You can purchase an annuity to begin paying out right away or defer payments for a future date.

Qualified longevity annuity contracts (QLACs) are annuities that are purchased with money from an IRA or 401(k). These vehicles lower your required minimum distribution balances, which can help defer taxes when you have to take RMDs.

5. Max out a Health Savings Account

Many people view a Health Savings Account, or HSA, as a means of saving for health care expenses in the present, rather than the future.

But an HSA can be a tax-advantaged way to save for future medical needs. With an HSA, the money you invest can roll over year after year. There is no use-it–or-lose-it rule attached to an HSA.

HSAs are triple tax-free. You get a deduction when you contribute, they grow tax-free, and you don’t pay taxes when you withdraw them for qualifying medical expenses.

There are limitations. For 2026, the limit is $4,400 for self-only coverage and $8,750 for family coverage. If you're 55 or older, you can contribute an additional $1,000. An HSA is only available with a high-deductible health plan.

“You can invest it and let it grow so you are prepared for your health care needs,” says Scott Cutler, CEO of HealthEquity.

Don’t wait until it's too late

Declining health might not be avoidable, but it doesn’t have to leave you destitute or a burden to your loved ones. A little planning now can go a long way later.

If insurance is the route you're going, the younger you are when you take out a policy, the cheaper it is. If you plan to use investment options or savings, the sooner you start planning, the better off you'll be.

“Everyone should have a health care plan regardless of age,” says Gandhi. “A long-term plan boils down to does somebody want to inherit that risk, want to share that risk or transfer the risk completely?”

Related content

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• Average Cost of Health Care by Age
• How to Pay for Long-Term Care
• We're Retired With $4.6 Million. My Wife Chose Our Medicare Advantage Plan for the $0 Premium, But I Want Original Medicare’s Freedom. Is It Too Late?

Did you have “global pandemic” on your bingo card of possible retirement risks? The reality is that risks abound, and you can’t always see them coming.

Still, a proactive stance can help you get through them — and thrive.

Here are the top risks retirees need to be aware of and how to guard against them.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

1. Outliving your savings

Americans are living longer than ever. While most would welcome increased longevity, it also means you’ll need money to fund additional years of retirement. What can you do to ensure your savings last?

• Work longer. Working just a few years longer can help you save more money, while also delaying your need to tap your nest egg.
• Part-time work. Instead of leaving work behind completely, consider taking a part-time job to bring in some income so your money can continue to grow.
• Delay Social Security. If your health is good and you have other income sources now, you can get a significantly bigger paycheck by waiting on Social Security.
• Consider an annuity. A lifetime income annuity provides you with a guaranteed source of income you can’t outlive.

2. Encountering sequence of returns risk

Your chances of running out of money are much less if you retire during a booming market and your portfolio is up. But what happens if you retire during a market decline? It’s a little-known phenomenon known as sequence of returns risk.

Making withdrawals from your portfolio when it’s down forces you to sell more investments to come up with the amount you need. Not only does that drain your portfolio faster, but it leaves you with fewer assets with which to participate in an eventual rebound.

A wealth adviser can work with you in the years leading up to retirement to create a pool of money for your immediate cash needs so you won’t need to make withdrawals if the market is down.

The chart below illustrates what can happen to a hypothetical portfolio based on different returns at different points in time.

3. Rising health and medical expenses

Health care is one of the biggest retirement expenses, but many people overlook it when planning for retirement.

Health care costs are expected to rise about 7.5% in 2025, a near-record trend that is driven by inflationary pressure, prescription drug spending and behavioral health utilization.

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To ensure that health care costs don’t overwhelm your retirement, pay attention to these things:

• Health savings accounts (HSAs). You can build up an account for health-related expenses by saving in tax-advantaged HSAs in the years before retirement.
• Health insurance. If you retire before age 65, you’ll need to line up health insurance coverage. Some options to consider: COBRA through your previous employer, a health exchange plan or a high-deductible plan paired with an HSA.
• Medicare. Medicare won’t cover all your health care expenses in retirement. In addition to Medicare, which covers some doctors’ visits and hospital stays, you’ll want to purchase supplemental plans to pay for out-of-pocket costs.
• Long-term care insurance. The possibility of needing long-term care is higher than you might think. Long-term care insurance can pay for care when you’re no longer able to care for yourself. The earlier you buy it, the more affordable the premiums will be.

4. Letting inflation erode your purchasing power

It may seem harmless in small doses, but over time, inflation can erode your purchasing power. Think of it as a silent thief stealing the value of your money. While Social Security has automatic cost-of-living adjustments each year, it’s up to you to make sure the rest of your money keeps up with inflation. These strategies might help:

• Invest for growth. Over time, stocks have shown the ability to outpace inflation. Even in retirement, it’s important to keep some of your portfolio invested in stocks.
• Inflation-proof your investments. Consider inflation in the context of your investment selection and work with your financial adviser to adjust based on your situation.
• Explore annuities. Some annuities come with payments that increase with inflation, providing a steady income stream that retains its purchasing power over time.

Retirement is an exciting chapter in life, offering countless opportunities for personal fulfillment and quality time with loved ones.

However, concerns about financial security can create anxiety and keep you up at night.

The good news is that with a little bit of planning, you can pave the way for a smooth transition into retirement.

Related Content

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• Average Cost of Health Care by Age
• How to Help Shield Your Retirement From Inflation
• Three Essential Estate Planning Steps to Protect Your Nest Egg

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Few people want to talk about the end of their life, but it’s an issue that many of us will have to manage. The average American lives seven years longer today than 60 years ago.

However, the trade-off is potentially living more years in poor health. Today, someone turning 65 has close to a 70% chance of needing long-term care services.

While planning for a potential nursing home stay is not as exciting as mapping out your next family vacation, health care expenses need to be included in a financial plan, and they’re not cheap.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

Long-term care is expensive

From home health care to nursing homes, costs can quickly add up. Monthly expenses can range from $6,000 to $11,000, and people tend to stay in assisted living or nursing homes for prolonged periods — the average nursing home stay is 485 days.

The average 65-year-old may need $165,000 to cover health care expenses in retirement.

What’s more, costs will increase with inflation, which is currently about 3%, meaning those same health care expenses could rise to nearly $350,000 by 2050.

Medicare usually doesn’t cover long-term care expenses, and Medicaid kicks in only as a last resort for extremely low-income families.

If you don’t plan, you are likely on the hook for the entirety of the expenses. Medical debt also doesn’t disappear when you pass away.

The remaining debt will be taken out of your estate, and if that isn’t enough, in some cases, it could leave your family liable for the remaining bill. Simply put, a durable financial plan must include how to pay the bills for long-term care.

Managing the cost

Self-insurance. With proper planning, there are solutions to help mitigate the costs. If you’ve saved enough money, you may be able to self-insure and cover the expenses out of pocket. Think of this as covering the costs “dollar for dollar.”

Taxes are the biggest thing you should keep in mind if you choose to pay for expenses out of pocket. If you suddenly need $50,000 to pay for a nursing home and withdraw it from a tax-deferred account, that adds to your taxable income and could lead to a hefty bill come tax season.

A way to circumvent this is to strategically convert portions of your tax-deferred assets to a Roth account ahead of time, or withdraw smaller amounts each year and save them in accessible accounts for when you need them.

Asset-based long-term care. Another option is to self-insure through asset-based long-term care. This is where the self-insuring strategy is amplified and you are able to self-insure for “pennies on the dollar.”

The two main vehicles for self-insuring through asset-based long-term care are an annuity or a life insurance policy.

The fixed-annuity option allows you to allocate a portion of after-tax dollars into a contract that will grow at a fixed interest rate. Should you need long-term care, the value of what the contract has grown to will be multiplied by either two or three times.

So for example, a $50,000 contract could provide up to $150,000 of coverage for these long-term care expenses. The nice part about a strategy like this is if you don’t need the care, you don’t lose the money. You just had the allocated dollars growing at a fixed rate in an account with no downside risk.

A life insurance policy operates similarly. Premiums can be paid monthly or in a lump sum, and the account grows in interest from the premiums paid. While traditional life insurance is reserved for your loved ones after you die, this option can cover long-term care while you’re alive.

Just like an annuity, if you don’t need long-term care, the tax-free death benefit is paid out to your loved ones much like traditional life insurance.

Using asset-based long-term care is like moving money from the right pocket to the left pocket. The asset remains yours and continues to grow at a determined rate while providing leverage in the event you need long-term care.

Long-term care insurance. While self-insuring has many benefits, it can require a larger portfolio and may not be an option for everyone. If that’s the case, you may need to look into a traditional long-term care insurance policy.

A traditional policy operates like health and life insurance: you pay a regular premium for coverage up to a set amount should you require long-term care in a nursing home or home health care. That total typically grows at a set rate per year to keep up with inflation.

Right now, annual premiums for a $165,000 initial pool will cost a 55-year-old couple $2,000 to $8,000, depending on how fast the pool grows each year.

Long-term care insurance requires you to pass medical underwriting, and pre-existing conditions, such as cancer or early symptoms of Alzheimer’s, may prevent you from being insurable.

This option is also a use-it-or-lose-it proposition. While the previous two options keep your money in your portfolio even if you don’t need long-term care, this functions like health insurance — the premiums leave your hands every month.

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If you never need coverage, the money is lost. We view this as a last-resort option if self-insurance is not for you.

Start planning as early as possible

Long-term care is not a fun topic, but it’s something many of us will need to proactively consider.

From asset-based coverage to traditional long-term care insurance, there are options that will protect you and your loved ones. But start planning as early as possible.

I recommend starting the process before you turn 60. Rather than ignoring the possibility of ill health in old age, work with a financial adviser to create a financial plan that prepares you for your golden years, whatever they bring.

The commentary on Kiplinger.com reflects the personal opinions, viewpoints and analyses of the author, Matthew Eilers, and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security, or any security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Foundations deems reliable any statistical data or information obtained from or prepared by third party sources that is included in any commentary, but in no way guarantees its accuracy or completeness.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Retirement: It's that time when you should be able to kick back, relax and finally enjoy the fruits of your hard work. But let's be honest — one of the biggest worries retirees face is the rising cost of health care. Medical expenses aren’t slowing down, and if you’re not prepared, they can hit you like a ton of bricks.

Take David and Linda, for example. They're a couple in their early 60s who worked hard and saved well. They felt confident about their retirement plan — until health care costs started to feel like a dark cloud hanging over their heads. Sure, they knew Medicare would help, but what about all those gaps and extra costs no one really talks about?

The truth is, health care costs can sneak up on you. According to Fidelity Investments, a 65-year-old couple retiring today can expect to spend over $300,000 on their combined health care throughout retirement — and that doesn’t even include long-term care.

When David and Linda heard that number, they knew they had to get serious about planning.

They started by taking a closer look at their health. David had a history of high blood pressure, and Linda had been managing type 2 diabetes for years. On top of that, their family medical histories revealed more risks — heart disease for David and arthritis for Linda.

Recognizing these potential concerns gave them some clarity. If they wanted to protect their financial future, they needed to prepare for medical costs beyond the basics.

Looking at Medicare

Medicare seemed like the next big puzzle to solve. David dove into the research and quickly realized there was more to it than he expected.

Medicare Part A would cover hospital stays, while Part B handled outpatient services and preventive care. Part D was crucial, too, helping to manage the cost of prescription drugs.

But the gaps — those hidden expenses that Medicare doesn’t cover — were still concerning. After weighing their options, David and Linda chose a Medigap policy to help fill those gaps. It wasn’t the easiest decision, but knowing their out-of-pocket costs would be manageable helped give them peace of mind.

Even with that coverage, they knew surprises could still pop up. So, they decided to build a dedicated health care fund. Thankfully, they had been contributing to a health savings account (HSA) for years, giving them a nice tax-free pool of money to use for qualified medical expenses.

To stay ahead of inflation and rising health care costs, they shifted part of their investment portfolio toward growth-oriented assets as well.

One concern that kept nagging at them was the cost of long-term care. A close family friend had recently faced staggering nursing home expenses, and David and Linda didn’t want to end up in the same situation.

After exploring their options, they chose a hybrid life insurance policy with a long-term care rider. This gave them the reassurance that their savings wouldn’t be wiped out if they needed extended care.

Considering prescription drug costs

Prescription drug costs were another area they tackled. They learned that switching to generic medications whenever possible can save a bundle.

They also started using tools like GoodRx to compare prices and make sure they were getting the best deals.

To stay on top of things, they reviewed their Medicare Part D plan every year to ensure their medications were still covered in the most cost-effective way.

Beyond financial planning, David and Linda realized they needed to prioritize their health to avoid bigger medical costs later on. They committed to regular checkups, screenings and vaccinations to catch potential issues early.

They also made lifestyle changes — morning walks, healthier meals and more active social lives. Surprisingly, these changes didn’t just improve their health — they also deepened their connection with each other and their community.

Feeling more confident but still wanting to make sure everything was buttoned up, David and Linda met with their financial adviser. Together, they mapped out a tax-efficient withdrawal strategy, aligned their retirement income with projected health care costs and made smart decisions about when to take Social Security.

With those final pieces in place, they knew they were ready.

Planning pays off

In the end, their preparation paid off. David and Linda entered retirement with confidence instead of anxiety. With a solid plan in place to handle health care costs, they were free to focus on what truly mattered to them: spending time with their family, traveling and embracing the retirement they had always dreamed of.

Planning for health care in retirement may seem overwhelming, but taking the time to prepare can offer incredible peace of mind. By assessing your health care needs, maximizing your Medicare benefits and building a dedicated savings strategy, you can better ensure your retirement is both secure and enjoyable.

The key is to start early, stay informed and remain proactive in managing your health care expenses.

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The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

The recent devastating fires in Southern California have highlighted the critical role of insurance in protecting our lives and financial well-being. Insurance isn't just about safeguarding your home; it's a comprehensive tool that can replace lost income due to disability, provide crucial support while traveling and help manage the significant costs of long-term care. In short, insurance acts as a financial safety net, mitigating life's uncertainties.

As a financial planner, I regularly review my clients' financial plans, updating their current financial information as their lives unfold. A critical component of these regular reviews is assessing their needs not only for life insurance but also for other vital protection essential to their financial well-being, such as auto, home, disability and long-term care insurance. It's crucial to remember that our insurance needs evolve as our lives change. Whether we’re getting married, having children or approaching retirement, regularly reviewing the types and amounts of coverage is essential for a comprehensive financial plan.

Insurance offers several key benefits:

Asset protection

Insurance protects your assets against financial losses from unforeseen events such as accidents, illnesses and natural disasters. It minimizes the risk of substantial out-of-pocket expenses and can replace lost income while offering a layer of security that allows you to manage financial uncertainties with confidence.

Cost-effective risk management

While insurance premiums represent an added expense, they are a relatively small price to pay compared to the potentially devastating financial impact of a major loss. Paying regular premiums can save you from large, unexpected expenses. Insurance is a proactive approach to risk management and is crucial to maintaining your financial health.

Enhanced financial security

Beyond safeguarding your assets, insurance can provide financial security that extends beyond your current savings. For example, life insurance can offer a significant payout to beneficiaries, creating a financial safety net for loved ones. This is especially important for young families with dependents.

Bridging the gap

Long-term care costs can be exorbitant, and government assistance programs often provide limited or no coverage. Long-term care insurance can help bridge this gap, protecting your retirement savings and ensuring access to necessary care without financially burdening your family. With a long-term care plan in place, you can enjoy peace of mind knowing that your future healthcare needs are adequately covered.

Building a financial legacy

By protecting your assets and using life insurance benefits to supplement your estate, insurance can be a powerful way to extend your impact beyond your lifetime. It can help you provide for loved ones and future generations. Your legacy could include providing educational opportunities while supporting causes that are important to you and can make a lasting impact.

Unfortunately, many people think about insurance only when a premium payment is due. However, insurance is a vital tool that can facilitate a quicker and smoother recovery from a wide range of life events. It provides peace of mind, knowing that you and your family can weather unexpected challenges without facing financial ruin. Review your situation with a financial planner to assess your specific insurance needs and ensure you have the right coverage to protect your future.

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The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

At lunch recently, a friend said he was about to meet with his financial adviser, who had prepared a 20-page report that, he told me, “will wrap up everything” about his retirement. I asked whether it would address long-term care or similar needs. He wasn’t sure.

I followed up: “Do you and your wife have LTC insurance?” Nope. He didn’t qualify when they applied years back.

So, the 20-page report will not cover “everything” my friend needs to consider for retirement.

Expenses for health care are often referred to as unplanned expenses, but actually they are expected; at least 70% of us will experience a long-term health event in our later years. So, I refer to these expenses as planned but not currently funded. The best plans account for them in retirement. (Unplanned expenses are what thousands of Los Angeles residents are experiencing now with the wildfires.)

What the usual practice is

Sometimes I question ChatGPT to round up current options and possible alternatives to big-picture questions. This time, I asked for a survey of retirement planning and withdrawal strategies.

According to AI, most retirement planning software tends to focus on planned withdrawals, such as those based on living expenses, income replacement or longevity protection. AI responded, as I expected, that “not currently funded” expenses, particularly those related to health crises, long-term care, or other unexpected family needs, are not actively incorporated in these models.

I also regularly search the usual sources of financial advice. A recent article in the New York Times pointed out that your working years, when you build up savings, aren’t like your retirement years, when you need a plan to spend your savings without running out.

The article suggested setting aside an emergency fund that could cover “surprise” health care and other costs. (“Surprise” is another label for “life risks,” which you know will likely happen but not “when and how much they’ll cost.”)

If you use the emergency fund approach for LTC costs, however, you could be setting aside 40% to 50% of your savings. A better solution might be a funding design that sets aside a smaller liquid fund and establishes a future source of liquidity that could pay these costs. Most retirement plans don’t consider this.

Three strategies for covering unplanned expenses

The investor we often use as an example is 70-year-old Sally, who has saved $1 million in her rollover IRA and owns her home, worth $1 million without a mortgage. She read one of my earlier articles, Transform Your Retirement Plan With This Powerful Combo, which describes a combination of a HECM and a QLAC. (If you’re interested in getting a quote, you can use the QLAC Calculator.)

We looked at three ways for Sally’s Go2Income retirement plan to cover a large expense in retirement. In this case, the expense is assumed to be $100,000, to pay for Sally’s long-term health care costs at age 85. (She doesn’t have long-term care insurance.) In one option, the money could come from her IRA account. Under the second, the source is a line of credit from a home equity conversion mortgage, or HECM. And the third is a combination that takes 50% from each. What we found is that the final two strategies work and produce very similar results at age 95 — $2.4 million in legacy and $1.7 million in liquidity. Circumstances could call for more expenses, so a 50/50 strategy may work best.

With these approaches, Sally is not stashing her retirement money in one or two emergency accounts at age 70 and then hoping for the best. Planning for all future events requires consideration of alternatives and possible adjustments along the way. Here are some opportunities:

• The costs for both an emergency health event and long-term care may be deductible, but the withdrawal from an IRA is creating a taxable event, while the loan against the HECM line of credit is not taxable. This could be significant, but it depends on the personal tax situation.
• Another issue: You’re not subject to market volatility when borrowing from the HECM. To reduce that risk, an allocation between the two sources, however, may be a smart strategy.
• If you expect a multi-year health event, and think you might need $400,000 for four years of expenses instead of just $100,000 for one year, don’t take the full $400,000 out of your IRA, but invest a portion — say, half — more conservatively within the account. This will save a considerable amount in taxes. A HECM can provide the other $200,000.

When you consider all your assets, a plan for retirement income can and should include a strategy to fund both planned expenses and unfunded costs like health and long-term care — at the same time that you consider taxes, lifetime income and legacy.

Order a Go2Income plan today based on the answers to three or four questions about your goals. Get started here with no obligation. Consult with your own qualified adviser, find an analytical tool to provide some guidance or talk to a Go2Specialist.

Want more guidance on retirement savings? Sign up for Kiplinger's six-week series, Invest for Retirement.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Will you need long-term care someday?

The odds say yes — about 70% of people over the age of 65 will need to access some form of long-term care in the future, according to statistics from the Administration for Community Living (ACL).

For many people, the big question becomes how to pay for long-term care when the need arises. Long-term care insurance can be expensive and hard to get. But not having insurance can result in depleted savings and the risk of running out of money during your lifetime (plus not having any to leave to your loved ones when you’re gone).

With the annual cost of long-term care ranging from $50,000 to $100,000-plus, paying for it can be a real concern. The cost will likely continue to rise as Baby Boomers age, and demand for services increases. Also, as health care advances and people live longer, the need for long-term care will grow.

So, am I in favor of purchasing long-term care insurance? The short answer is no if you don’t already have it. If you’ve had a policy for five or more years, then you may have a good policy that you got for a great price.

However, the cost of long-term care policies has increased significantly, and we haven’t recommended one of our clients buy a policy in over five years.

This doesn’t mean you shouldn’t do your own due diligence on long-term care insurance; we simply find there may be other, more attractive ways to cover the cost.

Keep in mind that we work with clients whom we call Midwestern Millionaires (I wrote a book on this that you can request here.) These types of people have been diligent savers and may be able to plan for ways outside of long-term care insurance.

It is important to understand your situation and know that general financial advice is not one-size-fits-all.

Also, long-term care insurance could become more popular over time as rates or products change.

You always want to be open-minded when it comes to retirement planning, and it is important to work with a team that will always be proactive in seeking the best solutions for you over time.

Here's a look at some of the other options to consider:

Option 1: Self-insure

Individuals who have enough money saved or a significant pension may be able to self-insure. However, this could result in leaving less to your loved ones after you die.

Going the self-insured route means you must have your investments structured well. There are two things to think about when planning for this: taxes and market protection.

Let’s start with taxes. If you need $100,000 annually to pay for long-term care, there will be a big tax impact if you take from your tax-deferred investments. This is where proactive tax planning becomes important; if you have a mix of tax-deferred and tax-free investments, you can potentially lower your tax bill and still be able to cover the cost of long-term care.

From a market protection standpoint, if the market is down and you need $100,000, you would experience one loss from the market being down and another loss from taking out money.

You could protect from this “double loss” by looking for investment options that offer more protection and less risk to ensure the money is available if — and when — you need it.

Option 2: Medicaid asset protection trust

Another strategy that has become attractive to some people in or near retirement is what’s called a Medicaid asset protection trust. This strategy isn’t for everyone, but it’s definitely worth a look for those who think they might need long-term care assistance in retirement.

With this strategy, you put your assets into a trust that is registered out of your estate. You can still access the assets within the trust if it’s set up the right way, but you may be eligible for Medicaid assistance earlier because you won’t be required to spend down all your assets to qualify.

Medicaid will allow you to still get the long-term care you need without the entire cost coming out of your pocket.

This strategy is complicated, and it must be completed in time to get the “free look,” which is different from state to state. This is why it’s important to work with an elder law attorney specializing in this area.

At Peak Retirement Planning, we work with an experienced estate planning attorney who meets with our clients and advisers to make sure things are set up correctly and that nothing gets missed.

A plan for long-term care

The key to making sure you receive the care you need in retirement is to have a plan in place. If you purchased a policy in the past, we recommend reviewing it regularly as a reminder of what it covers and when it kicks in.

You may also want to run the numbers to make sure it’s still the most cost-effective option for your situation. If you don’t own a policy, I recommend working with an adviser who can help you explore all the options and find the one that works best for you.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

As people live longer and health care costs continue to rise, the need for long-term care (LTC) insurance has become increasingly important in retirement planning. This insurance has evolved significantly in the past decade. Before 2010, LTC policies were largely traditional, with a “use-it-or-lose-it” approach. Today, new product structures such as asset-based solutions and return-of-premium policies are available, offering flexibility, financial protection and even opportunities to fund long-term care with qualified retirement funds. So, what does this mean for your retirement plan?

How LTC insurance has changed

Historically, long-term care insurance policies were structured similarly to traditional health insurance. These pre-2010 policies typically required ongoing premium payments and provided coverage only if the policyholder needed care. If the policy was never used, the premiums paid were not recoverable, making it a less appealing option for many people. This “use-it-or-lose-it” structure was also vulnerable to premium increases and, in some cases, left policyholders with difficult choices about maintaining coverage as they aged.

In recent years, LTC insurance has transformed into a more flexible and appealing option for retirees. Companies like One America and Nationwide have developed asset-based LTC solutions, such as One America’s Asset Care and Nationwide’s CareMatters, that allow retirees to purchase LTC coverage within a life insurance policy or annuity. These hybrid policies provide access to long-term care benefits if needed but also offer a return-of-premium feature or a death benefit if long-term care is not required. This makes it possible for retirees to preserve some of their investment.

Additionally, premiums for these policies are typically fixed, which helps retirees avoid the cost uncertainty of older LTC policies.

The Asset Care solution from One America even allows for long-term care insurance funding with qualified retirement accounts, including IRAs. This can be a powerful tool for retirees who want to leverage their retirement funds for future care needs, reducing the impact on other savings or cash flow.

Self-funding vs buying coverage

One of the first considerations retirees face is whether to self-fund long-term care costs or buy coverage. Self-funding, or paying for care out of pocket, allows retirees to maintain control over their money without paying ongoing premiums. This approach may work for those with significant assets who believe they can absorb the potential costs of long-term care without compromising their standard of living.

However, the risk of self-funding is that long-term care costs can be unpredictable and steep. According to Genworth’s Cost of Care Survey, the median cost for a private room in a nursing home is $116,800. That’s a 5% increase from 2022, and the cost is expected to continue to rise. The need for long-term care can also last for several years, potentially creating a significant financial burden, especially if both spouses require care at different points in their lives. Without LTC insurance, the cost of care could erode retirement savings, reduce inheritance for heirs and affect the lifestyle of the healthy spouse.

Buying LTC insurance mitigates these risks by providing a pre-established pool of funds for care. While premiums are required, modern policies offer more options, such as return-of-premium or death benefits. These options ensure retirees get some value from the coverage even if they never need long-term care. Additionally, LTC insurance allows retirees to safeguard their assets and retirement income from the high and potentially prolonged costs of care. For those with family and legacy goals, this protection can be invaluable, allowing retirees to pass assets on to loved ones without the risk of long-term care expenses depleting their estate.

Control and choice in care

Another advantage of LTC insurance is the level of control it offers over care options. Those with LTC insurance have a broader choice of care settings, including in-home care, assisted living facilities and nursing homes, without the immediate financial stress of paying for care. For retirees who value independence and would prefer to stay in their homes, LTC insurance can provide the financial resources to make that possible, often covering the cost of in-home care providers and necessary medical equipment.

Additionally, LTC insurance protects the financial lifestyle of the healthier spouse. When one spouse needs care, the cost can quickly consume retirement income or liquidate savings that both spouses depend on. By using LTC insurance to cover these costs, retirees can ensure that the healthier spouse continues to have access to income and savings, preserving their financial stability and lifestyle. This protection is particularly valuable for retirees who do not want to burden their spouses with the financial or caregiving responsibilities that can accompany long-term care needs.

Funding care with tax-deferred savings

The flexibility of modern LTC insurance solutions makes them a valuable addition to a well-rounded retirement plan. Asset-based policies give retirees options to repurpose their investments into products that provide both LTC benefits and a death benefit or return-of-premium feature. With the return-of-premium option, retirees who do not need care can receive a portion of the premiums paid either as a death benefit or through a return of the invested premium. This option ensures that money set aside for care doesn’t go unused.

Buying LTC insurance with qualified money, such as funds in an IRA or 401(k), allows retirees to allocate retirement savings toward long-term care protection, leveraging tax-deferred savings for future needs without withdrawing large sums from other accounts. For retirees who wish to preserve their independence, protect their spouse’s lifestyle and ensure that their assets are protected, modern LTC insurance solutions offer a flexible, cost-effective way to achieve these goals.

Integrating LTC insurance into retirement plans

Today’s long-term care insurance options are a far cry from the rigid, high-premium policies of the past. With asset-based solutions that offer return-of-premium benefits and the ability to use qualified funds, LTC insurance has become a versatile, cost-effective way to prepare for care needs. Retirees who buy coverage gain the dual benefits of protecting their assets and securing a level of control and choice over future care. Additionally, LTC insurance safeguards the lifestyle and financial stability of a healthier spouse, which can be essential for maintaining quality of life in retirement.

As retirees weigh the decision to self-fund or buy LTC insurance, it’s essential to consider the potential financial risks of care costs. With modern LTC insurance, retirees can now take a balanced approach that combines flexibility, asset protection and peace of mind for themselves and their loved ones.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Several years ago, when I was helping care for my parents toward the end of their lives, they were adamant they wanted to stay in their home for as long as possible. I quickly realized we would need lots of help to honor their wishes. Finding quality and reliable in-home long-term care was expensive, but fortunately, they had the resources to pay for it.

Witnessing how important it was to my parents to stay in their home, I encourage clients to plan for long-term care expenses because many of us are living longer and need specialized care more often. It is estimated that half of all Americans age 65 and older will require long-term facility care.

Today, long-term care costs have continued to rise. According to Genworth’s 2023 Cost of Care Survey, the average annual cost for a private room in a nursing home is $116,800. Fortunately, the options to help pay for these expenses have also expanded. The earlier you start planning, the more control you have over your future, empowering you to make informed decisions and feel more secure. Following are some options to help pay for these costs:

Cash reserves

Similar to saving for college costs, you can estimate future costs and what you need to save each month. Although self-funding is possible, it is prohibitive. You would need significant savings to cover potential long-term care costs.

Long-term care insurance

This is a more favorable option than self-funding. Long-term care insurance provides financial security for long-term care costs. Similar to car or home insurance, you pay a premium regularly. While there's no return if you don't use the insurance, the peace of mind it offers can outweigh the cost.

Hybrid cash value life insurance

This form of permanent life insurance includes a savings component. Over time, the savings can grow, and most policies allow you to add a long-term care rider. This rider provides a monthly benefit that is a percentage of the death benefit. For instance, a $500,000 death benefit policy could provide a $10,000 monthly income benefit for 50 months.

This option is advantageous as it combines long-term care benefits with potential life insurance proceeds for your loved ones. Keep in mind that you need to qualify for life insurance to take advantage of this option.

Asset-based long-term care annuity

For a lump-sum premium, this annuity provides a monthly long-term care benefit for a certain number of months. If you do not use the long-term care benefit, these annuities can also offer a death benefit. This type of annuity product can be better than the long-term care and life insurance options since, in most cases, you are accepted based on minimal qualifications.

The qualifications will depend on the life insurance company sponsoring the product. This means that you can receive long-term care benefits while also having a potential death benefit for your loved ones.

Fixed index annuity

Some fixed index annuities offer long-term care income benefits. These annuities typically have minimal qualifications for the product and require a lump-sum premium. It might be a good alternative if you cannot qualify for insurance or an asset-based annuity.

Home equity line of credit

This can be a good option for funding long-term care costs if you have sufficient equity in your home and can make the required monthly payments.

Reverse mortgage

This can be better than a home equity line of credit since you do not have to make payments on the loan during your lifetime. However, the initial and ongoing costs are typically more expensive than a home equity line of credit.

Selling an asset

This is how my parents funded their long-term care costs. This can be real estate, an investment account, etc. It can be an effective way to fund expenses; however, you need to have assets set aside to fund this cost.

Selling your home

In some cases, selling your home and moving into a care facility could be a way to cover potential long-term costs. This can be a good option if you feel comfortable with the idea of moving to a care facility instead of receiving home care. However, it's important to consider the emotional impact of leaving your home. For couples, selling your home may not be feasible, unless it can fund both a care facility and cover the costs of alternative housing for the other spouse.

The above list is not all-encompassing. Insurance may be the best way to maximize the long-term care benefit and get the highest value for the lowest cost. However, it is crucial to speak with a financial planner who can assist you in determining the best method to cover these potential expenses based on your circumstances.

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The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

When you think of your future retirement, you may be concerned about how much Social Security you will receive or if your 401(k) and other investment accounts will last. You should also be adding the cost of long-term care to your list of retirement necessities. Between unforeseen medical expenses and the possibility of nursing homes or assisted living facilities, the costs can add up quickly.

We see far too many people who simply ignore the topic of long-term care because they are worried about whether they can afford it. But it should not be forgotten because many, if not most of us, will need it at some point in our lives. Someone turning age 65 has about a 70% chance of needing some kind of long-term care service or support for the rest of their life. The cost of long-term care is continuing to rise, but there are ways you can start planning and preparing for higher costs now.

1. Understand long-term care options

Life expectancy in the United States has risen to 77½, according to the CDC, increasing for the first time in two years. This is why it is important to research and understand all of the long-term care options available. Discuss your wishes with your spouse and family members so they know what you want, if and when the time comes.

After you discuss your options with your family, consider talking with your financial adviser to see if long-term care insurance may be right for you. Without a proper plan, healthcare costs can drain your savings. Regular health insurance doesn’t cover long-term care, and relying on Medicare alone will not be enough. Long-term care insurance can help cover nursing home costs and home health care later in life. It can also help pay for any chronic medical issues, like Alzheimer’s or cancer. While some employers may offer long-term care insurance as part of their benefits, most people buy it through their financial professional.

2. Invest in a health savings account

If you are still working and saving for your retirement, consider a health savings account. An HSA is a tax-advantaged savings account that you can use at any age to pay for qualifying health care expenses. To contribute to an HSA, you must have a high-deductible health plan (check

your policy’s coverage details or contact your insurance company to see if your plan is HSA-

eligible). An HSA can be used to fund current healthcare costs, but the balance carries over each year and that money can be invested to grow for the future.

The IRS sets HSA contribution limits each year. In 2024, you can contribute up to $4,150 if you have health coverage just for yourself and $8,300 if you have coverage for your entire family. Those age 55 and older are eligible for a catch-up contribution of $1,000. Being able to pay for some of those expenses with tax-free money would be much more efficient than paying for them with money you have to pay taxes on first.

3. Strategize when to claim Social Security benefits

We pay into Social Security throughout our career, and when we hit retirement age many are eager to start claiming those benefits. However, most people do not understand how their benefit amount is calculated. Your monthly benefit is calculated by using your 35 highest-earning years. The earliest you can claim Social Security is age 62. While it may be tempting to turn on your Social Security benefits as soon as you reach that age, it can be beneficial to delay your benefits.

Claiming benefits before full retirement age results in a permanent reduction by as much as 30% of your benefit. If you delay claiming, it can be a big bonus. Your benefit will grow by as much as 8% per year from your full retirement age through age 70.

If you are married, Social Security spousal benefits are designed to provide additional retirement income for couples. If you are divorced and have not remarried, you may be able to claim benefits based on your ex-spouse’s benefits if their benefits are higher than your own. And if you are a widow, you are eligible for your partner’s benefit if it is higher than yours.

It’s important to talk through claiming strategies with your financial adviser before your 62nd birthday; claiming at the right time for your unique situation often means more money in your monthly check!

When saving for retirement, you should always include a plan for any unexpected medical bills. Healthcare expenses can take up a large amount of your retirement income. Working with your financial adviser is a great way to come up with a plan to boost your retirement savings and prepare for the cost of long-term care.

Drake & Associates is an independent investment advisory firm registered with the U.S. Securities & Exchange Commission. This is prepared for informational purposes only. It does not address specific investment objectives, or the financial situation and the particular needs of any person who may view this report. Neither the information nor any opinion expressed is to be construed as a solicitation to buy or sell a security of personalized investment, tax, or legal advice. The information cited is believed to be from reliable sources, Drake & Associates assumes no obligation to update this information, or to advise on further development relating to it. Past performance is not indicative of future results. Registration as an investment adviser does not imply a certain level of skill or training.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The cost of medical care has been a decades-old debate in America. Some argue health care should be free for all, while others support a privatized system. Regardless of where you fall on the issues, medical debt is a real concern for many Americans.

Nearly 4 million U.S. adults 65 and older reported unpaid medical bills in 2020, according to a Consumer Financial Protection Bureau report. Despite federal health care programs like Medicare and Medicaid, the same report found 68% of adults 65 and older who reported outstanding medical debt were covered by two or more insurance providers. Of those, 44% say they weren’t sure the bills they received were accurate, and 68% say they expected their insurance providers to cover part or all of the bill.

There can be a multitude of reasons for mounting medical debt, but regardless of how it builds, the consequences can be catastrophic. The good news is you can take steps now to mitigate medical debt in retirement.

Part of planning for retirement involves planning for how to pay for long-term care. Long-term care is generally defined as the assistance a person with a serious illness, injury or cognitive impairment will need to navigate daily life. Long-term care planning largely focuses on how you wish to receive care, whether it’s in an assisted-living facility, a nursing home or via in-home care. Each option has its own associated costs, which may or may not be covered by Medicare or Medicaid — meaning you’ll need to either save up a boatload of money so that you can self-pay or invest in some sort of long-term health care insurance.

The basics of traditional long-term care policies

Long-term care insurance comes in two different types: traditional policies and hybrid policies. Traditional policies cover only the costs of long-term care services, such as nursing home care, in-home care, living costs at assisted-living facilities, adult day care programs and more. These policies provide a daily or monthly benefit. Coverage periods can range from one year to a lifetime. Hybrid policies usually allow you to make one lump-sum payment or pay premiums over time. However, traditional policies typically don’t offer a single-premium payment. Your insurer should be able to help you come up with a payment process that works best for you.

As for your specific benefits, they’re tax-free, and they can be protected against inflation — if you buy a rider for that option.

While traditional policies offer lower out-of-pocket costs, compared with hybrid policies, they have some potential drawbacks you’ll want to be aware of:

• There are no guaranteed contracts, meaning the cost of your premium isn’t guaranteed (so it will likely rise over time).
• These policies also have no cash value, which means no withdrawals can be made should you encounter a financial emergency.
• Traditional long-term care insurance policies also don’t typically provide a death benefit. If you don’t use your benefits, you’ve essentially lost the money you’ve paid for this type of coverage. In other words, you use it or you lose it.
• It’s also important to note that these policies typically don’t keep up with care and cost changes, which could lead to gaps in coverage.

How hybrid policies differ

If you’re looking for a policy that offers additional benefits, a hybrid long-term care insurance policy might be a good fit. These plans combine traditional long-term care insurance with life insurance or annuities. These plans allow you to collect dual benefits.

If long-term care is never needed, the policy still pays a death benefit to beneficiaries, which ensures that the premiums you’re paying are not lost. These policies also provide long-term care coverage similar to traditional policies.

Premiums for hybrid policies are also fixed, mitigating the risk of future increases. Some hybrid plans may even allow you to pay with a one-time lump-sum payment. If you decide to cancel the policy, many policies will refund your premium.

These policies also generate a cash value that you can withdraw or borrow against if needed. If not, the money can be left to the beneficiaries. These plans also may be more flexible on health requirements. The benefits paid out are tax-free, and they can be protected against inflation if you buy a cost-of-living rider.

However, like traditional policies, hybrid policies have some cons to consider:

• One of the biggest drawbacks is a higher investment cost. Single-premium hybrid plans require a significant upfront investment, which can be unaffordable for some. Even those who pay premiums through payments over time face higher initial costs, compared with traditional long-term care insurance.
• Depending on the structure, these policies can also be complex, and the benefits may vary.
• The long-term care benefit amounts provided in hybrid policies may also be lower than what traditional policies offer, which could lead to gaps in coverage. Benefit periods may also be shorter.
• There are also some investment risks to consider. For example, the funds used to pay for a single-premium hybrid policy could be invested elsewhere, yielding higher returns. These policies also offer reduced flexibilities, meaning funds aren’t as liquid as other investments.

The bottom line

Regardless of what option you choose, long-term care planning should be comprehensive. You’ll want to consider all factors when deciding what type of coverage to invest in. Do you have family members you plan to leave an inheritance to when you die? How and where would you like to receive care should you become disabled, injured or cognitively impaired? And how much risk can you afford? Can you afford to pay a premium that won’t be returned to you if the coverage isn’t used?

These are all important questions to ask yourself at the beginning of the long-term care planning process. Consider talking your answers over with a financial adviser. They can provide you with an in-depth analysis of traditional and hybrid plans, providing you with the pros and cons, so that you can make the right choice for your financial situation.

The content of this article is developed from sources believed to be accurate and complete; however, no guarantee can or is given for such accuracy or completeness. Nor is the information in this material intended as financial, tax or investment advice. Please consult your own qualified professional for specific information regarding your individual situation.

The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale, or the solicitation of such an offer, of any security, insurance or annuity product.

Investing involves risk, including the loss of principal. No investment strategy can guarantee a profit or protect against loss in a period of declining values. Any references to protection benefit or lifetime income generally refer to fixed insurance products, never securities or investment products. Insurance and annuity products are backed by the financial strength and claims-paying ability of the issuing insurance company.

Links to third-party websites are being provided for informational purposes only. CoreCap is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors. CoreCap is not responsible for the content of any third-party website or the collection or use of information regarding any websites users and/or members.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Imagine you own a crystal ball. That crystal ball tells you there is a 0% chance you’ll die in the next 10 years. You’re not going to buy a 10-year term life insurance policy. Most people in their 30s, 40s and 50s would assess their odds of ending up in a nursing home in the next 10 years at the same odds. While that would not be totally accurate, it is unlikely. That’s just the rub with insurance. No one wants to pay a premium for something they won’t use.

At the same time, no one wants to be in the situation where they need to use it. When it comes to long-term care insurance, that often leads to folks waiting too long. But what is the optimal age to buy so that you’re not paying for too long but also not paying too much?

This is a complicated question, as it depends on so many personal factors. However, here are some rules of thumb for when to buy long-term care insurance: According to AARP, the best age range is between 60 and 65, with a significant assumption that you will still qualify for care. According to the American Association for Long-Term Care Insurance, 30.4% of people between the ages of 60 and 64 will be declined for the insurance. Partly for this reason, they recommend applying for coverage in your mid-50s.

There are many personal factors to consider when figuring out the best age for you. Below we cover some, but not all, of them.

1. Health

When I was affiliated with ING early in my career, I was trained to say, “You’re insuring your insurability.” I don’t disagree with this sentiment. If you have a family history of something that may preclude you from getting coverage later in life, that may be a reason to start earlier.

2. Gender

For about a decade, women have had to pay more for insurance because they tend to live longer and therefore need long-term care for a lengthier period than men. For this reason, paying policy premiums over a longer period is more impactful. Therefore, assuming coverage can be obtained, starting as late as 65 for women tends to be more affordable.

3. Income

Because of high claim rates, LTC insurance is expensive. Traditional policies also don’t guarantee, and probably won’t have, level premiums. This is one of the reasons many opt for the hybrid life insurance or annuity options.

It is much less painful to pay a premium while you’re working than it is to pull it from your savings in retirement. While this one is less quantitative, it can help to align your premium with your retirement date. So if you are 55 and plan to retire at 65, buy a policy that is paid up in 10 years.

All insurance is a risk-management tool. If you have a lower risk tolerance, you are more likely to get the coverage and to get it early. Your financial plan can point out how much of a risk this is. For example, someone with a large balance sheet may be able to self-insure. If you want to build your plan or reaffirm your numbers, you can use a free version of our software.

In my experience, the biggest factor influencing when and if you get LTC insurance is really quite simple: Do (or did) your parents need it?

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Saving for retirement is not an overnight project. It takes years of strategic planning to build a nest egg that can sustain you through the end of your life.

In fact, Americans believe they’ll need nearly $1.5 million to retire comfortably in 2024, according to a study from Northwestern Mutual. That’s a 53% increase from 2020, when Americans believed they’d need $951,000 to retire comfortably.

This sharp increase is concerning, but data shows women face additional challenges when building their nest eggs. Prudential’s 2024 Pulse of the American Retiree Survey found that women only have roughly one-third the amount saved as men (a median of $50K vs. $157K). The data also shows women are three times as likely to delay retirement due to caregiving duties.

But it’s not all bad news. There are steps women can take to boost their retirement savings, helping them reach their retirement goals.

No 401(k)? One alternative to consider

Many women report not having access to an employer-sponsored retirement plan. This could be partly due to the amount of time women spend at work. According to the Department of Labor, women are more likely to work part-time jobs, which often don’t come with access to retirement savings plans. Gender roles also come into play with women being more likely to take time off work to care for family. As a result, they’re working fewer years and contributing less to retirement savings. When it comes to employer-sponsored retirement plans such as a 401(k), the Department of Labor found only 43.5% of working-age women participated in a retirement plan.

While contributing to an employer-sponsored retirement plan is helpful due to matching contributions, it’s not a requirement to build retirement savings. Opening a Roth IRA is a great alternative. These accounts offer tax-free growth and tax-free withdrawals in retirement.

With investing, an early start helps

Another crucial step in maximizing your retirement savings is investing. When it comes to investing, time is your best friend. A report from Fidelity Investments found 7 in 10 women wish they would have started investing their extra savings earlier. Investing early on gives your money more time to grow, thanks to factors like compound interest.

Plus, investing at a younger age allows you to take more risk. Historically speaking, women tend to take a more conservative approach with their investments. A report from Wells Fargo found 76% of men believe the stock market is a good place to invest, compared with just 72% of women. Some of this lag could be due to women’s knowledge and risk tolerance when making investments. According to Fidelity, 70% of women respondents said they need to know more about picking individual stocks and 65% say they’d be more likely to invest if they had clear steps to follow.

Investing can be overwhelming, but you don’t have to have a high risk tolerance to see a good rate of return. The same report from Fidelity found women outperformed men in their investments by 40 basis points or 0.4%. If you’re feeling uneasy about investing, consider meeting with a financial adviser. They can help you build a diverse investment portfolio that aligns with your financial goals.

Don’t forget about health care

Outlining your long-term care plans is another component of your retirement plan. Medical care can become extremely expensive over time, especially if you require in-home care or need to be moved to a nursing home or assisted living facility. Women also have a longer life expectancy compared with men, which can exacerbate costs. According to the CDC, the average life expectancy for men is 74.8 years old. For women, it’s 80.2 years old.

Purchasing long-term care insurance can help offset these costs, mitigating the fear of outliving retirement savings.

Make learning about finances a lifelong priority

Financial literacy is another key component to creating and preserving your wealth. Attending financial seminars, reading up on financial news and following changes in federal supplemental programs such as Social Security and Medicare can help you financially prepare for the future. Learning about various money management strategies and how to apply them to your financial situation can help you maximize your savings, providing you with a nice financial cushion in retirement.

In addition to staying educated, meeting with a financial adviser can also be a huge help. They can answer any questions you may have and suggest solutions that fit your needs.

The bottom line: There’s hope for women

Saving for retirement requires a lot of planning. It can be difficult to plan for the unknown. However, contributing to a retirement account, whether that be a 401(k), Roth IRA or both, is a great first step. Even if you’re only able to make small contributions, you’ll be surprised at how these funds grow over time.

From there, begin researching various investments you’d like to make. If you have any questions or concerns, consult with a financial expert. As you’re planning your retirement, don’t neglect your long-term health care plan. Purchasing long-term care insurance can help supplement certain medical costs, which can preserve your savings and lessen the burden on your loved ones as you age. And remember, knowledge is power. Continue your journey to financial literacy. Not only will it teach you money management skills, it will also help you feel more confident about your financial situation.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Are you concerned about the rising cost of long-term care? Are you worried about not being able to leave your spouse or kids the assets that you've worked so hard to save?

If so, then I'm going to share a solution to help you better plan for this big risk in retirement.

As we all know, long-term care costs are one of the biggest risks in retirement. Three of my four grandparents have needed long-term care, and the experience has been hard — not only emotionally but also financially.

The cost of long-term care can be anywhere from $50,000 to $100,000 a year, depending on your location and the type of care. The average stay can be anywhere from two to five years, so that length affects the overall financial impact.

Knowing that 70% of people will need long-term care at some point in their retirement means that it is especially important for you to plan for.

The only problem is — how do we plan for such costs, especially when long-term care insurance is so expensive? Add to that the fact that we have to be insurable to be able to get it.

So, instead, let's talk about another option that may be attractive to some people.

The opportunity is called a Medicaid asset protection trust. The idea of this is to move money out of your estate into this type of trust so that the government cannot come after it for Medicaid planning purposes.

Let's take a step back to understand how Medicaid planning works. The government will offer you free long-term care assistance after you spend down the majority of your assets.

The good news is that you get the care you need. The bad news? You lose what you have worked so hard for.

So how do we ensure we get the care we need but also protect what we've worked hard for? That's where this trust comes into play.

This trust has to be set up the right way

First, we must set this trust up the right way and give it enough time to satisfy the look-back period. Then Medicaid will not consider those assets when deciding if you are eligible for Medicaid.

This can be of a lot of value for those with larger amounts of non-qualified assets, such as multiple properties or non-retirement investments.

The thing to note with this trust is that you will want to make sure it is an irrevocable trust. Now, that can be scary because an irrevocable trust typically means you have no access to those assets anymore. But if you set this trust up the right way, you can still have access to those assets.

It's important to work with an estate planning attorney who specializes in this area.

You also want to make sure that you're not getting sold this trust if you do not need it, because not everyone needs it. If you don't have any non-qualified assets, and all of your assets are in an IRA, then it may not make sense for you.

Current rules state that money in an IRA will not be spent down until after both spouses have passed. Keep in mind that these rules can change at any time, and that's why it's important to find an attorney you can continue to work with to make changes to these trusts as needed.

Make sure the attorney you work with meets with you periodically to make any adjustments required based on rule changes as they happen. We believe preparing for this now will better set you up for success if there are rule changes in the future.

Setting one up can be costly

The other downside of this type of trust is cost. Depending on who you work with to get it done, the cost can be anywhere from $7,000 to $12,000.

You'll likely get the best results when you work with a financial planner who partners with an estate planning attorney to ensure your trust gets done the right way, that you don't get sold something you don't need and that you get the best pricing.

Other planning advantages and opportunities

With trusts, you can also be more creative about ensuring the money goes to the people you want it to go to and when you want it to go to them.

For example, if you wanted your kids to get only a certain amount each year for the rest of their lives, then you could have that set up. Or, if you wanted a minor child to not get the money until the age of 25, then you could do that also.

You could also ensure that if there was a divorce or one of your family members died, the money would stay in the family.

Those can all be reasons why setting up a Medicaid asset protection trust can make sense.

We work with many people in or near retirement who have been diligent savers, but only some of them implement this kind of trust.

That's why it's important to do your due diligence and see if this makes sense for your specific situation. When the right situation presents itself, it can be a wise strategy.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Often, one of a client’s biggest goals is making sure their spouse is protected if they pass away. Choosing the best distribution option for your pension when you retire is an important decision.

Many people think they should take the survivor option to make sure their spouse is left in the best financial position. However, if you get creative with your planning, you may be able to create a better outcome than just taking the survivor option.

Taking the survivor option means you have to pay for that benefit, which in turn means that you don’t get as much money from your pension while you are alive.

For example, we had a client whose pension paid $5,000 a month for their lifetime. If they selected the survivor option (which would pay the spouse 50% of their pension for life), they would give up 10% of their pension going forward.

This means $500 per month would be deducted from their benefit, and they would receive $4,500 per month. When they pass away, the spouse would receive $2,500 a month for the rest of their life.

It may not be obvious whether this is a good or bad option without digging into the numbers. I don’t know about you, but $500 a month seems very expensive. Just think what you could do with an extra $500 a month in retirement.

Since the No. 1 goal of many people reading this article is for their spouse to be taken care of, let’s see what other protection options there may be for that $500 a month.

Consider life insurance

Some clients we work with consider replacing this survivor option with life insurance. What type of life insurance could you get for $500 a month? Someone who is 60 years old, depending on health, could get a permanent life insurance policy with a death benefit of about $350,000.

This means that if you passed away, $350,000 would go to your spouse at any time as long as you continued to pay on the policy. Or you could get around $1 million of death benefit with a 20-year term life insurance policy. This would last for 20 years, then go away, which is why you get more benefit for what you pay.

Typically, we would look at utilizing a combination of both to ensure the spouse has enough to live on if something were to happen.

How much does your spouse need to live the retirement they want? That is a determination you would need to make for yourself, but I can tell you that typically the life insurance benefit could be nearly as much as, if not more than, the $2,500 a month benefit they could have gotten by taking the pension by finding the right combination of term/permanent life insurance coverage.

The life insurance benefit would also be tax-free, while the pension payment would be taxable each year — and it could be taxed at the single rate vs the married rate, which is less advantageous for your spouse. (This is known as the “widow’s penalty.”)

An additional benefit is that if your spouse passes away first, you could now leave this insurance money to your kids tax-free. Also, many life insurance policies have a long-term care option that allows you to accelerate the death benefit if you were to need that care.

If you purchase a permanent life insurance policy, many have a cash value buildup that you could access and then cancel the policy if your spouse passes away first — meaning that what you paid into the policy is not wasted.

Keep in mind that you must be insurable to take advantage of this option, and the cost will depend on how healthy you are. For those who are younger and healthier, this can be a viable option.

I would suggest working with a financial planner who specializes in comprehensive planning — including pension and life insurance planning — to help you run the numbers to see if this is a good option for you. If it is, they can help you find the best vehicle to fit your situation and goals. (I wrote a book for those with pensions, The 2% Club, that you can request for free here.)

Another concern to keep in mind

This type of planning can also be beneficial for those who may be concerned about the long-term viability of their pension. In recent years, pensions have shown signs of stress as people are living longer and there are fewer people paying into them. As a result, many pensions are underfunded.

Exploring options beyond your pension could mean more control for your retirement.

It could also be beneficial not to choose the pension survivor option if your spouse is older than you or is not expected to live as long as you. The bottom line: You don’t want to pay for something you may never benefit from.

If you decide not to take the pension survivor option, it’s very important that you have a plan in place to make sure your spouse is taken care of in the event that you pass away first.

If you’re not eligible for life insurance, or you don’t have enough investments to self-insure, then in some cases, I would counsel you to take the pension survivor option to ensure your spouse is covered, even if that means not maximizing your pension benefit. In this case, the risks outweigh the potential benefits.

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• Do You Have at Least $1 Million in Tax-Deferred Investments?

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Adequately planning for retirement is becoming a growing concern for Americans, and many worry they’ll have to be millionaires before they can stop working.

A recent study from Northwestern Mutual found that adults across the U.S. believe they will need $1.46 million to retire comfortably. That’s a 53% increase compared to the $951,000 many believed they would need back in 2020.

Unfortunately, the amount Americans actually have saved is dropping. According to the same study, the average American had $89,300 saved in 2023. That number has dropped to $88,400 in 2024. So what does this mean when it comes to long-term health care costs, and what can you do now to avoid financial stress in your golden years?

Before you can formulate a plan to attack health care costs in retirement, it’s important to understand the federal programs in place and how much coverage they provide.

Federal programs and their coverage

Once you turn 65, you become eligible for Medicare. Medicare is a federal insurance program that is meant to help offset health care costs in retirement. Part A covers in-patient hospital stays, hospice care and some home health care. Part B covers certain doctor’s visits, outpatient care, medical supplies and preventive services. Part D helps cover the cost of prescription drugs. Although there are many parts to Medicare, it doesn’t cover everything — forcing some people to enroll in supplemental insurance programs known as Medigap plans. However, the plans may only cover a certain amount depending on how much money you have saved.

The Employee Benefit Research Institute found a 65-year-old man enrolled in a Medigap plan with average premiums will need to have $106,000 saved just to have a 50% chance of having enough to cover premiums and average prescription drug costs. That number jumps to $128,000 for women. This difference in cost is likely due to the fact that women tend to live longer than men. To have a 90% chance of covering health care costs in retirement, the average man will need $184,000 in savings; women will need $217,000. According to the CDC, the average life expectancy for women is 79; for men, it’s 73.

Based on these findings, it’s safe to say health care costs will take a decent chunk from your retirement fund — but don’t let these numbers paralyze you. There are small steps you can take now to help you become more financially secure in retirement.

1. Maintain a healthy lifestyle.

It's obvious advice, but it bears repeating. If you make an effort to stay active and eat healthy, you'll likely spend less on health care than someone who ignores diet and exercise and has other unhealthy habits such as smoking.

2. Boost your retirement savings.

Generally speaking, the sooner you start saving for retirement, the better off you’ll be. If possible, increase or max out contributions to your employee savings plan.

The IRS also allows adults over the age of 50 to make annual catch-up contributions to certain accounts:

• 401(k). You can contribute an extra $6,000 each year.
• 403(b). Employees with at least 15 years of service can contribute up to $6,000 annually.
• IRA. For either a traditional IRA or Roth IRA, you can contribute up to $1,000 more each year.

3. Open a health savings account (HSA).

If your employer offers a health plan that is HSA-eligible, consider enrolling. As part of the plan, you can contribute to a health savings account (HSA) without a tax penalty. Your contributions are made pre-tax. As a bonus, your savings grow tax-free, and you can withdraw money tax-free as long as it is used for qualified medical expenses.

4. Consider your retirement age.

The average age of retirement is 62 for most Americans. While three extra years of retirement may sound good, there are some serious drawbacks. During those three years, you won't be able to contribute to employee-sponsored savings plans. You won't have a steady income. You also won't be eligible to enroll in Medicare until you are 65. That means you’ll be paying out of pocket for health insurance for three years.

5. Live like you are already retired.

An easy way to boost your savings is to cut back on your spending. Start by envisioning your retirement and look for costs to cut. If that vision involves downsizing your home or cooking healthy meals at home, begin making those changes now. Limit the career clothing you buy. Consider purchasing a more economical car. These changes will save you money right away. They will also make the transition into retirement easier.

Unfortunately, doctor visits and medication costs aren’t the only health care expenses you’ll need to account for. Another major factor you’ll need to consider is where you’re going to live as you age — especially if you become cognitively impaired. Data from Genworth found that in 2023 Americans could spend up to $75,504 annually for in-home care, $64,200 for assisted living care and up to $116,800 for nursing home care. Those costs alone could eat through your retirement savings in just a few years. Fortunately, there are several long-term insurance plans that can help offset these costs.

Here are some common plans:

Long-term care insurance. This type of insurance is specifically designed to cover the costs of long-term care services. Policyholders pay premiums in exchange for coverage, which can help cover home care, assisted living or nursing home care expenses.

Hybrid life insurance with long-term care rider. Some life insurance policies offer a long-term care rider, allowing policyholders to access a portion of the death benefit to cover long-term care expenses if needed. These policies provide both life insurance coverage and long-term care benefits.

Annuities with long-term care benefits. Certain annuity products include long-term care benefits that can help cover expenses if the annuitant requires long-term care. Annuities with long-term care riders may offer a lump-sum payment or monthly benefit to cover care costs.

Medicaid. Medicaid is a joint federal and state program that provides health coverage to eligible low-income individuals, including coverage for long-term care services. Eligibility criteria vary by state, but typically income and asset requirements must be met to qualify.

Employer-sponsored plans. Some employers offer long-term care insurance as part of their benefits package. These plans may provide coverage for employees and their eligible family members at group rates.

Accounting for long-term health care is a crucial part of retirement planning. There are a number of steps you can take to help grow your savings now, and there are some insurance options for covering long-term care expenses.

As you’re planning, consider your current health status, cost of care, health insurance coverage, financial resources, family support and personal preferences. Taking these factors into account can help you make an informed decision that best suits your needs.

Related Content

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• Two Keys to a Happy Retirement: Health and Wealth Plans
• Before You Retire, Consider These Five Questions
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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

As Baby Boomers transition into retirement, ensuring financial security becomes paramount in the face of potential uncertainties. From market fluctuations to health care expenses and longevity risks, navigating these challenges requires proactive planning and strategic decision-making. Here are six actionable steps for Baby Boomers to protect their finances and secure a prosperous retirement.

Before diving into specific strategies, it's crucial for Baby Boomers to grasp the various financial risks they may encounter in retirement. These risks include market volatility, health care costs, inflation and the need for long-term care. By recognizing and addressing these risks, Boomers can better prepare themselves for the financial challenges ahead.

1. Building an emergency fund.

A robust emergency fund serves as a financial safety net, providing Baby Boomers with peace of mind in the face of unexpected expenses or income disruptions. While conventional wisdom suggests setting aside three to six months' worth of living expenses, retirees may benefit from a larger emergency fund to account for potential health care or long-term care costs.

Baby Boomers should carefully assess their current expenses and financial obligations to determine the appropriate size of their emergency fund. Additionally, they should consider potential health care costs, including deductibles, copays and out-of-pocket expenses, when calculating their emergency fund needs.

By setting aside a sufficient amount in their emergency fund, Boomers can protect themselves against unforeseen financial emergencies and maintain financial stability in retirement.

2. Ensuring sufficient insurance coverage.

Reviewing insurance policies is essential to ensure Baby Boomers have adequate coverage to mitigate various risks in retirement. Health insurance plays a critical role in covering medical expenses, while long-term care insurance can protect retirement assets from the high costs of assisted living or nursing care. Additionally, life insurance and disability insurance provide financial protection for you and/or your loved ones in case of illness or death.  

Baby Boomers should thoroughly review their insurance policies to understand the extent of coverage provided and any limitations or exclusions. They should also assess their potential health care needs in retirement and consider purchasing supplemental insurance, such as Medicare Advantage plans or Medigap policies, to fill gaps in coverage.

3. Diversifying investments and managing risk.

Diversifying investment portfolios is key to mitigating risk and preserving capital in the face of market volatility. While reducing exposure to equities near retirement is prudent, certain financial products, such as annuities, offer protection from market fluctuations while providing a reliable income stream. Annuities with guaranteed income features can help cover income needs not fully met by Social Security benefits.

Baby Boomers should work with a financial adviser to develop a diversified investment strategy tailored to their risk tolerance, financial goals and time horizon. This strategy may include a mix of stocks, bonds, mutual funds and other asset classes designed to generate income and preserve capital.

4. Properly preparing for health care costs.

Health care expenses can pose a significant financial burden in retirement, making it crucial for Baby Boomers to prepare adequately. In addition to Medicare coverage, long-term care insurance should be considered.   

Baby Boomers should carefully evaluate their potential health care needs in retirement and explore various insurance options to mitigate the financial impact of medical expenses. They should research Medicare coverage options, including Parts A, B and D, as well as supplemental Medigap policies or Medicare Advantage plans.

5. Considering investments that combat inflation.

Preserving purchasing power is essential in retirement, necessitating investments that keep pace with inflation. Certain stocks or mutual funds focusing on sectors with growth potential or dividend-paying companies can provide a hedge against inflation while generating income for retirees.

Investment options may include dividend-paying stocks, real estate investment trusts (REITs), inflation-protected bonds and  Treasury inflation-protected securities (TIPS). By allocating a portion of their investment portfolio to inflation-fighting assets, Boomers can mitigate the erosive effects of inflation on their retirement savings and maintain their standard of living in retirement.

6. Setting up an estate plan.

Establishing a comprehensive estate plan is vital as Baby Boomers age. This includes naming financial and health care powers of attorney to make decisions in case of incapacity. Additionally, having a will or trust ensures assets are distributed according to the retiree's wishes, minimizing the risk of disputes or legal challenges.

Baby Boomers should work with an estate planning attorney to create a comprehensive estate plan that reflects their wishes and protects their assets for future generations. This may include drafting a will or trust to specify how assets should be distributed upon death, designating beneficiaries for retirement accounts and life insurance policies and appointing trusted individuals to serve as executors or trustees. Additionally, Boomers should consider establishing advance directives, such as health care proxies and durable powers of attorney, to ensure their wishes are honored in the event of incapacity.

Navigating financial uncertainties in retirement requires proactive planning and a multifaceted approach to risk management. By building an emergency fund, ensuring sufficient insurance coverage, diversifying investments, preparing for health care costs, considering inflation-fighting investments and setting up a comprehensive estate plan, Baby Boomers can safeguard their financial well-being and enjoy a secure retirement.

As they embark on this next chapter of their lives, Boomers can take comfort in knowing they've taken proactive steps to protect themselves from unforeseen challenges and pave the way for a prosperous future.

Justin Stivers is an investment advisory representative of and provides advisory services through CoreCap Advisors, LLC. Stivers Law is a separate entity and not affiliated with CoreCap Advisors. The information provided here is not tax, investment or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Being able to afford to retire is a goal we spend most, if not all, of our working years planning. We start by investing in a 401(k) or Roth IRA, in hopes of saving enough money to last us once we no longer work. But how do you plan for all the unexpected costs, especially when it comes to your health care?

According to last year’s Fidelity Retiree Health Care Cost Estimate, a single person who’s 65 years old will need to have about $157,500 saved, after taxes, to cover health expenses. For a retired couple at age 65, that number goes up to about $315,000. Obviously, that number is dependent on several factors, like how long you work, when and where you choose to retire, your health and how long you’ll live, but it gives you a good benchmark to aim for.

While it is helpful to have that overall dollar figure in mind, it’s important to remember that health expenses are better calculated on an annual basis. You know how much your insurance premiums are, how much you typically go to the doctor and the costs incurred therein, the tests or procedures when seeing those providers, etc.

The basics of Medicare

Once you turn 65, you’re eligible for Medicare. There are several different components: Parts A, B, C, and D. “Original Medicare” consists of Part A and B. Medicare Part A will cover inpatient medical expenses you may have after you meet your deductible per benefit period ($1,632 in 2024). Most people do not have a premium for Part A. Part B is outpatient coverage, but requires a premium of $174.70 per month in 2024. Original Medicare does not cover prescription drugs, which is where Part D comes in, so you’d want to make sure to get a plan to cover medications. Even if you do not take any prescriptions, it is wise to at least purchase a drug plan with a low monthly premium to avoid any late enrollment penalty in the future.

You might want to consider Medicare Advantage plans offered by private insurance companies, which are Medicare Part C. These plans are all-encompassing, providing coverage for services under Parts A and B and also can include drug coverage. They are network-based, so when choosing an Advantage plan, it is vital to ensure that all of your doctors are in network. You also want to look up your medications to make sure they are covered. Taking care of those two steps will whittle what is likely dozens of plans available to you — down to a handful. Advantage plans may or may not come with an additional monthly premium cost and may also cover services not covered by Original Medicare, such as routine vision, dental, gym membership, over-the-counter benefits and so on.

You can change your coverage

As you're reviewing different options, keep in mind that the plan you select isn’t permanent. You can change your coverage over time to fit your health care needs as you age during certain times of the year, most notably during the annual election period (AEP) of October 15 through December 7. Now, you might be wondering what happens if you or your spouse is still working at 65. If you receive coverage through an employer, you’ll still be able to get that coverage until you or your spouse retires. Once that happens, you’ll have the option to enroll in Medicare through a special enrollment period (SEP).

Medicare Advantage plans are a great option for medical coverage once you retire, but they don’t cover everything. Supplemental policies are also offered through private insurance companies and provide coverage for many things not fully covered under Medicare. Medicare supplements, also called Medigap plans, fill in many of the gaps in Part A and Part B, such as the $1,632 deductible, or the 20% coinsurance for outpatient services. Supplements will come with an additional monthly premium, depending on the plan you get. Most supplements’ rates will increase as you get older. There are no network restrictions on a supplement. Your first six months of eligibility for Part B allows you an open enrollment period to get into any supplement with no questions asked.

Like Original Medicare, supplements do not include prescription drug coverage, so you would still need to get a separate Part D plan to cover your medications. There are many different supplements to choose from, so be sure to compare costs as you’re making your selections.

Finally, supplements do not cover additional benefits, such as routine vision, dental and so on like some Advantage plans can, so you would need to get separate dental and vision plans to help with those costs.

About long-term care insurance

Medicare does not cover custodial care, the most common type of long-term care. Those are typically covered by traditional long-term care insurance plans. These are also offered by private insurance companies, and the benefits they pay out per day can keep you from having to tap into your savings to pay for your health care. It’s best to purchase one of these plans when you are younger, when the rates are more affordable and you’re generally healthier. That’s because you will have to pass underwriting to purchase one.

A benefit-rich long-term care plan accompanied by your choice of Medicare coverage options can go a long way to ensure that you’ve protected your retirement nest egg and maintain control of your health care into your golden years.

Figuring out what coverage works best for you and your family can be overwhelming, so be sure to talk with your employer about your health care coverage and seek the counsel of an independent insurance agent so that you understand all of your options, costs and potential restrictions.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Navigating all of life’s curveballs can be one of the hardest parts of responsible life planning. No one can predict exactly what life will throw at them or where exactly they’ll be five, 10 or 20 years down the road. Thankfully, products like insurance can help cautious individuals plan for life ahead, giving them peace of mind even if the worst-case scenario never actually occurs. 

One such insurance is long-term care insurance, which can help cover the costs of long-term care that may not be covered by your health insurance. Whether it’s due to aging or the result of a debilitating illness or disability, individuals who require regular care for the long term — or expect that they may in the future — may benefit from purchasing a long-term care insurance policy.

However, not all policies are created equal, and careful consideration should be given to a number of factors before making a decision. To help, the financial leaders of Kiplinger Advisor Collective discuss those factors below, as well as how you can find the best policy for you and your needs.

Whether your benefit payments increase over time
“One major factor to consider is whether or not your benefit payments increase over time. For instance, $5,000 a month in benefits now is a lot different than $5,000 a month in benefits 20 years from now. Another factor to consider is how long the benefits are paid for, as well as if the company has the right to increase premiums in the future. You would also want to know what that increase may look like.” — Bob Chitrathorn, Wealth Planning By Bob Chitrathorn of Simplified Wealth Management

How you want to handle a long-term care event
“I think even before shopping for long-term care insurance, it is important to think about how you want to handle a long-term care event. For example, where do you want to receive care, who do you want to provide your care, and what resources do you want to use to pay for your care? Since many older Americans prefer to age in place, consider including inflation protection and benefits for home care.” — Marguerita Cheng, Blue Ocean Global Wealth

Customizable vs 'out of the box' solutions
“Long-term care policies allow you to customize the coverage. Don’t accept ‘out of the box’ solutions. Instead, customize your long-term care policy to suit your needs, focusing on what costs you won't cover personally. You rarely need to cover 100% of these costs for 100% of the time you might need care. Tailor the policy to handle what you're unwilling to cover.” — Greg Welborn, First Financial Consulting

Any ongoing costs that would need to be paid
“Long-term care insurance can be helpful during retirement, but it can also be expensive depending on the benefits that are provided in the policy. People should look at policies from different insurance carriers and the monthly benefits they offer to get a sense of the ongoing costs they would need to pay.” — Mario Hernandez, Longevity Wealth Management

Daily vs monthly benefit coverage
“A daily benefit long-term care policy may trigger untimely out-of-pocket expenses due to an overage of services provided in a day. Selecting a monthly long-term care benefit helps smooth expenses and reduce unwanted out-of-pocket daily expenditures. Have discussions with your loved ones early on regarding topics like your well-being and their future availability. Identifying what you value most enables you to select long-term care coverage that’s best for you.” — Dr. Preston D. Cherry, Concurrent Financial | Center for Financial Wellness - UW-Green Bay

Alternative solutions to rising premiums
“Retirees should understand that their premiums could increase dramatically as they age. Retirees should consider long-term care annuities or hybrid long-term care insurance through life insurance, as the premiums tend to stay the same and reduce the cost of long-term care to a fraction of what it would be out of pocket, and use a long-term care insurance agent to help find the perfect policy.” — Shawn Plummer, The Annuity Expert

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• No Long-Term Care Plan? Here’s What to Do About It
• Is Hybrid Long-Term Care Insurance Right for You?
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The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

When you imagine your retirement journey, you likely picture trips to the beach, leisurely days with the grandkids and lots of time for hobbies. A lengthy stay in a nursing home probably isn’t part of that vision. Yet nearly 70% of Americans turning 65 will need some long-term care and support.

“Everyone thinks they’ll be in the 30%, but the numbers say to plan otherwise,” says Beth Ludden, senior vice president of long-term care product development at Genworth.

The nationwide average daily cost for a shared room in a long-term care facility is $305, with an average annual cost of $111,32, per the most recent data from Genworth’s Cost of Care Calculator 2024. The range across the country can vary significantly, from a low of about $175 per day in parts of Texas and Louisiana to approximately $1,000 per day in parts of Alaska and California.

While Medicaid can pay for long-term care, it generally only kicks in after you’ve spent down virtually all of your assets. Before then, you typically have three options. “You can either pay for everything yourself, a family member can take care of you, or you can buy long-term care insurance,” says Jesse Slome, executive director of the American Association for Long-Term Care Insurance.

Long-term care (LTC) insurance can protect your assets so all of your lifelong savings don’t go to a facility or home healthcare service. However, these products are expensive and have other limitations.

Here’s what to know:

1. Long-term care insurance pays out a set benefit 

When you buy LTC insurance, you decide how much coverage you want. It’s usually a maximum daily or monthly benefit, such as up to $6,000 per month for a nursing home or a home healthcare worker. Some policies will only reimburse you for what you spend on care, while others will send you cash for the value of the benefit once you start needing care, regardless of the actual cost.

You also pick a waiting period, during which you need to cover costs before the coverage begins. A ninety-day period is the most common. For an added charge, your coverage amount can increase over time, so that your coverage keeps up with rising costs.

2. Insurers cap your lifetime benefit 

Insurers once offered unlimited benefits for long-term care policies, but today, they usually limit payments to three to five years. You also pick the maximum possible payout from the policy. For example, a policy might pay out $165,000 total for care. If you spend past the policy limits, you’ll be back on your own.

The policy limits fit the needs of most retirees. Men, on average, need 2.2 years of long-term care, while women, on average, need 3.7 years, based on recent data. About 20% of 65-year-olds end up needing care for five years or longer. Ludden ran into this situation with her mother. “After four years, her policy ran out, and she had to use her funds to cover the facility for two months.”

3. Insurance can enhance government benefits 

If you have long-term care insurance, you could use the policy to pay for a better facility that doesn't accept Medicaid. If your policy runs out and you do end up going onto Medicaid, some state governments consider whether you bought insurance beforehand, says Genworth’s Ludden.

For example, say you buy $250,000 of LTC insurance coverage and spend down the entire policy, forcing you to pay for care with your personal savings. Depending on the state, the government might let you qualify for Medicaid benefits before you spend the last $250,000 of your other assets.

4. Premiums are expensive, especially for women 

Long-term care insurance is not a cheap product. The cost depends heavily on your age and gender. A 55-year-old male in standard health would pay $2,075 per year for a $165,000 LTC policy with a 3% inflation rider, growing to about $400,500 by age 85. A 55-year-old female would pay $3,700 per year for the same policy, according to the American Association for Long Term Care Insurance. Women pay more than men because they typically live longer and are more likely to need extended long-term care.

A 65-year-old male would pay $3,280 per year for the same coverage, while a 65-year-old female would pay $5,290 per year. If you’re married or in a committed relationship, you can qualify for a discount on a joint policy that covers both of you.

Long-term care insurance policies use level premiums, meaning that after you sign up, the insurer cannot increase the cost based on your age and health. Buying younger can lock in a better deal. Insurers can increase rates for all policyholders but only if they can prove to the government that it’s needed to support future payouts, not for extra profits.

5. Prices for newer long-term care insurance policies have stabilized 

When LTC insurance first came out, companies didn’t properly understand this market and charged too little for the payouts. As a result, they ended up repricing and raising rates for existing policyholders.

“The new policies sold today have factored in the things that caused issues with older policies. While no one can guarantee you won’t face a substantial rate increase due to a market adjustment, it’s very unlikely,” says Slome.

6. You can use partial protection 

"LTC insurance doesn’t have to be an all-or-nothing proposition," says Slome. If you’re concerned about the cost, he suggests getting a policy for a lower amount with the plan to cover the remaining costs with your savings. For example, if you think long-term care will cost you about $6,000 a month, you could get a policy for $3,000 and pay the remaining $3,000 out of your assets.

There are also short-term care policies that only pay out benefits for one year but cost much less than long-term care insurance. These policies charge both genders the same prices, making them a better deal for women. Medicare provides short-term care in a facility for a stay of up to 100 days, but not beyond that.

7. You must pass health underwriting to buy long-term care insurance

LTC insurance companies do not accept every applicant. You must meet the health underwriting standards and apply while still reasonably healthy. “You can’t wait until you’re in a facility and need help paying bills to apply. By then, it’s way too late,” says Slome. People aged 55 to 69 in reasonably good health are generally the best fit for LTC insurance, says Slome. Eighty is the maximum age to apply at most companies.

Once you qualify for LTC insurance, the coverage is usually guaranteed renewable for your entire life as long as you keep paying the premiums. If you let the policy lapse and reapply, you would need to pass health underwriting again.

8. There are alternative ‘hybrid’ products 

You can buy a life insurance policy that includes long-term care policy coverage. If you need care, the policy pays out some or all of the death benefit while you’re still alive. If you pass away without needing long-term care, your heirs receive the full policy death benefit.

“There’s a payout either way. It’s not a use-it-or-lose-it scenario like stand-alone long-term care insurance,” says Jordan Mangaliman, chief executive of Goldline Insurance and Financial Services in Fullerton, California.

You could qualify for life insurance into your seventies if you’re in good health, says Mangaliman. Life insurance policies usually pay a lower total benefit for care versus similarly priced LTC insurance policies. You must also read the fine print for when your life insurance would pay.

Another option is to buy an annuity. You pay for the annuity upfront, and in exchange, it gives you future income payments that can be guaranteed to last your entire life. Some annuities offer a long-term care benefit. For example, an annuity might double your monthly payment for several years when you need long-term care, says Mangaliman. In exchange, adding this benefit could reduce your starting monthly annuity payments.

9. It pays to compare insurers before buying 

Each insurance company has its own rates and health underwriting standards. Before signing up, you should get a few quotes from different companies.

Mangaliman suggests using an insurance broker representing multiple insurance companies to speed up the process. When comparing, consider each insurance company’s A.M. Best rating for financial stability to pay future claims and J.D. Power score for customer satisfaction.

The long-term care insurance market is small, with only six insurers selling stand-alone policies: Mutual of Omaha, Thrivent, National Guardian Life, New York Life, Northwestern and Bankers Life. In terms of quality, insurers tend to offer similar levels of coverage, and the main difference is the price they quote for you.

“It’s not like one company will sell you a Mercedes while another is a Honda. With LTC insurance, they’re all Hondas,” says Slome.

10. LTC insurance gives you more options for care 

If you have a long-term care insurance policy, you have more flexibility to decide how you receive treatment and where. For example, you could spend the money on a home healthcare worker rather than go into a nursing home under Medicaid.

Slome finds that people with insurance are more willing to pay for better care and get help sooner, whereas those without insurance tend to hold off. “If an earthquake destroys my house, I won’t cheap out on the repairs because I have homeowner’s insurance. People do the same when they have long-term care insurance,” he says.

Note: This item first appeared in Kiplinger Retirement Report, our popular monthly periodical that covers key concerns of affluent older Americans who are retired or preparing for retirement. Subscribe for retirement advice that’s right on the money.

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Medicare is set to expand its coverage to include marriage and family therapists as well as mental health counselors beginning in January 2024, adding to what's covered under the different parts of Medicare.

The move, which was announced in July, is a big change for Medicare that has for decades limited mental health care coverage to services provided by psychiatrists, psychologists, licensed clinical social workers and psychiatric nurses, according to KFF Health News.

The change means that now, if you are a Medicare recipient, you can receive care from more than 400,000 marriage and family therapists and mental health counselors, which make up more than 40% of the licensed mental health workforce, who will be paid directly by Medicare, according to the Centers for Medicare & Medicaid Services (CMS). This expansion is especially critical in rural areas where access to care is currently limited, CMS said. 

Medicare is also expanding intensive outpatient care by up to 19 hours per week to improve support for severe mental illness, and is broadening mobile crisis services that can treat people at home or on the streets, per KFF.

“It is abundantly clear that our nation must improve access to effective mental health and substance use disorder — collectively called 'behavioral health' — treatment and care,” CMS Deputy Administrator Meena Seshamani and CMS Chief Transformation Officer Douglas Jacobs, said in a CMS blog post. “For older Americans and individuals with disabilities enrolled in Medicare, many individuals have felt the effects of worsening depression and anxiety or have struggled with the use of substances like opioids or alcohol.”

The changes go into effect January 1, 2024. Before making appointments, you should make sure the provider accepts assignment from Medicare. You can find providers on the Medicare website.

Medicare's new handbook

Medicare laid out the mental health update along with a number of other updates in its recently issued Medicare & You 2024 handbook. These include:

• Savings on prescription drugs: If you have Medicare drug coverage (Part D) and your drug costs are high enough to reach the catastrophic coverage phase, you don’t have to pay a copayment or coinsurance.
• Lower cost for insulin and vaccines: Your Medicare drug plan cannot charge you more than $35 for a one-month supply of each insulin product Part D covers.
• Changes to telehealth coverage: You can get telehealth services at any location in the U.S., including your home, until the end of 2024.
• Managing and treating chronic pain: Medicare now covers monthly services to treat chronic pain if you’ve been living with it for more than three months.
• More times to sign up: If you recently lost or will soon lose Medicaid, you may be able to sign up for Medicare or change your current Medicare coverage. 
• COVID-19 care: Medicare will continue to cover the COVID-19 vaccine as well as several tests and treatments.

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From high-quality security cameras to elaborate alarm systems, people spare no expense to keep their home safe. But what are you doing to protect your retirement home?

You worked hard to build a solid foundation with good saving and spending habits, and years of investing have helped the walls of your retirement home take shape. Protecting that home is critical. While you may have a strategy to lower your taxable income or a portfolio that protects against market risk, have you thought about your long-term care (LTC) plan?

Planning for the worst matters

Everyone hopes to pass away peacefully after a long, healthy retirement. Unfortunately, life rarely plays out that way. My family could never have predicted the impact LTC would have on our finances.

When my father stopped to help someone with a flat tire on the side of a road, he was tragically sideswiped by a passing car. He spent the rest of his life recovering from the accident and never left the nursing home. Paying for 27 years of LTC cost my parents everything they had, including their 401(k) plans and the home they raised their family in.

We never saw this tragedy coming, and the same could be true for you. We don’t know what life has in store for us, but you’ll be thankful for the security LTC protection can provide.

The cost of LTC adds up quickly. On average, a semiprivate nursing home room costs over $80,000 per year, according to LongTermCare.gov. Keep in mind, the need for LTC is typically a progression: You may need in-home care to start, eventually transition into assisted living and then a nursing home. Those phases can stretch out over many years, even decades.

While traditional health care coverage and Medicare may cover some short-term services, most long-term assistance is not covered, such as an extended nursing home stay or in-home assistance. Paying for these services on your own may hinder your ability to meet day-to-day expenses in retirement, and you run the risk of depleting any legacy you were hoping to leave to your loved ones.

Long-term care plan options

The Assistant Secretary for Planning and Evaluation (ASPE) estimates that 70% of today’s 65-year-olds will need some type of LTC in retirement. Since traditional health care coverage and Medicare do not cover any ongoing assistance, those who need LTC are left with four options:

Self-funding. You can pay for LTC out of pocket, dollar-for-dollar. If you end up being a part of the 30% who won’t need LTC in retirement, this option could work in your favor. But that’s a major gamble! There’s no way to know if you’ll need LTC or not, and being forced to self-fund your LTC needs can quickly deplete your retirement savings that were earmarked for other retirement expenditures.

Long-term care insurance. In exchange for a monthly premium, long-term care insurance policyholders can receive coverage for their LTC needs. Depending on the terms of your policy, you may pay a premium for 10, 15 or 20 years. No matter how much money you pay in premiums, most policies do not offer a payout if the policy goes unused, and there is no death benefit to your beneficiaries. Many people are uncomfortable with that risk.

Life insurance. Most people know about term and whole, but there are other types of life insurance with features designed to protect you from LTC risk. Some indexed universal life insurance (UIL) and universal life (UL) insurance policies allow you to tap into the death benefit during your lifetime to cover any LTC costs. Unlike an LTC insurance policy, if the LTC features of a IUL or UL insurance policy go unused, your beneficiaries will receive the full tax-free death benefit when you pass away.

Talk to a retirement planner during your lifetime about the insurance options available to you. Life insurance coverage is dependent on a medical exam, so if you have certain health issues, it may not be a viable solution for you.

Fixed indexed annuities. A fixed indexed annuity (FIA) with an income rider can include LTC benefits. If you purchase an FIA, you’ll pay an insurance company a lump sum of money, and after a certain number of years, you’ll receive an income stream that pays out monthly for the rest of your life. If you add LTC benefits to your contract, you can receive a double payout when an LTC need arises. Let’s say your FIA pays out $2,000 every month. If you need to pay for any LTC, that monthly payout will increase to $4,000.

An accelerated benefit stream can usually only kick in once you’ve held the policy for five years, and the benefit is typically capped at five years, although some policies are only three years. However, the normal income stream from an FIA will continue throughout the lifetime of the policyholder.

Finding the right fit

Deciding what kind of fence to build around your retirement home is a personal decision. There are benefits and drawbacks to every LTC option, and what’s right for one person may not work for another.

While it’s important to be proactive, buying LTC insurance or life insurance at a young age could get very expensive after years of paying premiums. On the other hand, waiting to purchase a policy could put you at risk of paying high premiums because of any health problems you may have developed in your 50s and 60s.

It’s important to meet with a trusted financial adviser who can help you determine the right time to buy and what type of protection your family needs. No two situations are alike, but an adviser can help you weigh the pros and cons specific to your assets, family history, medical history, tax plan and beneficiary needs. I recommend working with a professional who has the experience and industry knowledge needed to keep you and your loved ones safe from the potential burden of LTC.

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• Long-Term Care Insurance: To Buy or Not to Buy?
• Five Tips for Becoming a Financially Successful Couple

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Two U.S. lawmakers with jurisdiction over the Medicaid program are seeking answers from seven of the nation’s largest Medicaid Managed Care Organizations (MCOs) about the MCO's high rates of prior authorization denials for patients.

House Energy and Commerce Committee Ranking Member Frank Pallone (D-NJ) and Senate Finance Committee Chair Ron Wyden (D-OR) sent letters to the MCOs after an “alarming” report by the Department of Health and Human Services (HHS) Inspector General found that numerous MCOs had “staggeringly high rates of denial of health services for patients.”

The letters, which request more information including explanations of how certain benefits are categorized, were sent to the chief executives of: CVS Health’s Aetna, AmeriHealth Caritas, CareSource, Centene, Elevance, Molina Healthcare and United Healthcare Community & State. Responses are due by October 31.

Medicaid, which is funded jointly by states and the federal government, is one of the country's largest healthcare providers. It provides health insurance to millions of people including low-income adults, children, pregnant women, elderly adults and people with disabilities, according to the HHS website.

More than 70 million low-income Americans are enrolled in Medicaid MCOs, which are responsible for ensuring that they can access the necessary care that they are legally entitled to, Pallone and Wyden said in a statement.

“While plans may use prior authorization as a means to manage care, this (HHS) report raises serious questions about whether plans are improperly using prior authorization to deny care,” they said.

Denial rates more than double Medicare Advantage rate

The report found that MCOs denied an average of one out of every eight (12.5%) prior authorization requests for service, which is more than double the Medicare Advantage denial rate. In 2019, according to the report, Medicare Advantage health care plans denied only 5.7% of prior authorization requests.

Among the 115 MCOs that the Inspector General reviewed, 12 had prior authorization denial rates greater than 25%, which is twice the overall rate.

“Although any individual prior authorization denial may be appropriate, it is unclear why some MCOs had rates of prior authorization denials that were so much higher than their peers,” according to the HHS report.

The report’s findings “raise serious concerns that Medicaid MCOs are systematically and improperly denying necessary care, which they are required by law to provide,” Pallone and Wyden said. “Low-income children and families, seniors, and people with disabilities rely on these plans for access to critical health care services, and prior authorization denials prevent them from receiving these services, which can lead to worse health outcomes.”

States pay MCOs a specified amount per member per month, which is meant to cover the expected costs of care for each enrolled beneficiary, they said, adding that the concern is about whether this may be creating financial incentives for the MCOs to increase profits by denying requests for care.

To find out more about the Medicaid program, including features such as inpatient and outpatient hospital services, as well as physician and home health services, visit the Medicaid.gov website. 

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You might be shocked to discover that as few as 3% Americans have a fully funded plan for long-term care expenses. Although, on second thought, maybe you wouldn’t be surprised at all — because you’re one of them. Which means, just like for everyone else, the sooner you change that, the better.

Of course, knowing you have to start and knowing where to start with long-term care planning can be two different things. So, to help, let’s consider the case of Jennifer, a 45-year-old small-business owner who lives with her husband and young son in New York.

Like many people, the busyness of life and work mean Jennifer has yet to fully lock down her long-term care preparations. However, having recently experienced the challenges of caring for a family member suffering from a serious illness, she’s now keen to get a plan in place.

As she put it to me: “When you’re caring for someone, it’s totally all-encompassing. So, there’s a real sense of guilt because you don’t have enough time to focus on anything or anyone else. As for your own self-care, you just don’t take a back seat, you’re in the trunk! I was shocked by how quickly things can get worse, too, and how hard that is to deal with. If I need long-term care one day, I don’t want my family to have to go through the same thing.”

Jennifer’s situation is by no means unusual. And the good news is it’s not too late for her to get started. The advantages of doing so are also clear. Research shows that people with a fully funded long-term care plan tend to remain in their homes longer, get more longevity out of their retirement nest egg and benefit from the fact any payments from a properly structured plan are made tax-free.

A clear long-term care plan makes delegation easier

The value also extends beyond just economics. With a clear long-term care plan in place, it’s much easier to delegate tasks that are purely medical to a professional — stuff like getting the correct medications, choosing the right kind of bed and going to the pharmacy. This leaves your loved ones free to focus on your relationship and on spending quality time with you.

Preparing for your long-term care now also means you’re making decisions when life is stable. This is far more sensible than trying to do it when you’re already unwell or in the midst of a crisis. Plus, it helps you set a good example to your kids about being willing to make hard decisions rather than procrastinate.

So, back to Jennifer. According to the National Association of Insurance Commissioners (NAIC), most of us can expect to spend somewhere between $250,000 and $300,000 on long-term care depending, of course, on our condition and how long we require it. Broadly speaking, she has four options for how she’s going to fund that amount. (Read more about each of these options in my previous column How to Get Your Long-Term Care Planning on the Right Track.)

1. Self-fund through investments and/or sale of assets.

This option benefits from being easy to set up and flexible, as the funds can be used however you want — be that to pay for long-term care or for something else. However, it requires the most money because there’s no leverage from an insurance contract. There’s also the risk that your investment or asset suffers a loss in market value at the very time you need to pay for long-term care.

2. Buy a standalone long-term care insurance plan.

The good news here is that premiums can be tax-deductible as a business expense and that policies often include an inflation rider to protect against inflating healthcare costs. It also potentially qualifies you for your state’s Partnership Program, which lets you shelter an amount of assets equal to the amount of care funded through the contract while still qualifying for Medicaid. However, rates can increase, and there’s no accumulated cash value, which limits flexibility. Crucially, if the plan isn’t used to fund long-term care, the money is lost.

3. Set up a hybrid contract (either a life insurance contract or annuity contract) that contains a long-term care rider.

The advantages of most hybrid long-term care insurance contracts are they offer flexible premium options, have no rate increases and have an accumulated cash value. They also carry a death benefit that lets you recover the cost if you don’t need long-term care after all. That said, always check the details. In some instances, inflation riders might not be available while and the cash value accumulation and death benefit may not be fully guaranteed.

4. Rely on government Medicaid provision.

The benefit of this approach is the guaranteed access to facilities based on the payment of Medicaid premiums. However, the challenges are a loss of control over where we get old and who provides our care as well as the fact the facilities may not be of the highest quality. Note also that it requires you to prove you are “poor on paper” by moving any assets out of your name in advance.

So, taking into account Jennifer’s lifestyle and financial situation, her age and health status, her desire to have a deductible business expense for her and her spouse, her wish to have a certain benefit paid one way or the other for her invested premium and her need for flexibility in managing her care, what option should she consider?

The answer is a hybrid contract with a long-term care rider along with a self-funded account that’s conservatively invested to provide some additional flexibility and cover the elimination period, which is the amount of time you wait before the carrier begins paying out the benefit. Elimination periods vary in length and are selected by the policyholder, who is responsible for paying for services out of pocket during this time. and. To that end, a hybrid contract will allow Jennifer to pay lower premiums, partially deduct those premiums as a business expense, retain flexibility because of the multiple ways of accessing the benefit and mitigate the risk of “wasting” her premium dollars should she not ultimately need the benefit to cover long-term care.

Many people will find this combined approach is the right option for them, too. But as with Jennifer, it’s important to properly analyze your individual circumstances before making any decision, ideally with the help of a qualified financial professional. They can help you understand the options available, make the complex simple and find a way to integrate long-term care preparations into your overall financial plan without it impacting your current lifestyle.

Right now, it may feel like thinking this far ahead is just another tricky item on your already-bulging to-do list. But fast-forward a few years, and your future self and your loved ones will be very grateful that you had the courage and foresight to address this issue now.

This article has been obtained from an outside source and is provided as a courtesy by Stephen B. Dunbar III, JD, CLU, Executive Vice President of the Georgia Alabama Gulf Coast Branch, Equitable Advisors and Equitable Network do not legal or tax advice and make no representation as to the accuracy or completeness of this information. You should consult your own legal and tax advisors regarding your particular circumstance. Applications for life insurance and long-term care insurance are subject to underwriting. No insurance coverage exists unless a policy is issued and the required premium to put it in force is paid. Guarantees are based on the claims-paying ability of the issuing insurance carrier.

Stephen Dunbar offers securities through Equitable Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC (Equitable Financial Advisors in MI & TN). Annuity and insurance products offered through Equitable Network, LLC. Equitable Network conducts business in CA as Equitable Network Insurance Agency of California, LLC, in UT as Equitable Network Insurance Agency of Utah, LLC, in PR as Equitable Network of Puerto Rico, Inc. GE-5681217.1 (5/23) (Exp. 5/25)

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Running out of money is the number one fear for the majority of retirees, but the longevity risk is even greater for women. Not only do they face uphill, systemic battles with their finances, like the gender wage gap, but they also have a greater chance of living longer.

On average, women live six years longer than men, and 85% of centenarians are women! Living longer leads to more health care costs: Over 70% of assisted living residents are women, and over half of nursing home residents are female. Having a well-thought-out wealth plan is especially important for women to help ensure a successful retirement, no matter how long it lasts.

I have seen firsthand what can happen to women who do not have a wealth plan. My own grandmothers, Rose and Lilian, lived well into their 90s, and one outlived her money while the other came close to running out — a financial nightmare for them and their loved ones who eventually had to supplement the cost of their care. Their stories provide valuable lessons to empower the next generation of women with financial knowledge and strategies to create a wealth plan that outlives them.

My grandmother Rose was a schoolteacher and a single mother. She owned her own home and rented the additional upstairs space for extra income. A proactive planner, she had active investments and a pension from the Miami school system to help pay for her eventual retirement.

From the outside looking in, Rose did everything “right” when it came to her finances. What she failed to account for was three decades of income needs and the high cost of her future long-term care, which meant the majority of her wealth went to taxes and health care costs instead of her family.

Although the gender wage gap has decreased since Rose was working, women still only make 82 cents for every dollar a man earns. Not only does this lower their saving potential, this can also decrease women’s Social Security benefits, which is based on income. As a proud husband and girl-dad, I will do my part to advocate for payment equality for women. But while we wait for positive change, as a financial adviser, I believe women can use a strategic wealth plan to maximize their savings.

When it comes to saving enough for everyday needs, women can use low-risk investment tools like CDs and money market accounts to make their money stretch further, ultimately creating more room in the budget to save for long-term goals, like retirement.

When saving for retirement, some might consider more tax-efficient savings vehicles outside of the traditional 401(k). A Roth IRA lowers future tax liability through tax-free growth and tax-free withdrawals in retirement, which is especially important, as many experts predict taxes will rise to help pay for our national debt. For many, taxes will be the greatest expense in retirement, but using tax-efficient strategies now can help lower that risk.

It’s paramount to understand what kind of yield your investments need to earn to meet your retirement income needs, but how much is “enough” is different for each person. To avoid taking on too much risk or not investing aggressively enough, I believe it’s key to work backward by calculating estimated retirement expenses first, taking into account inflation and projecting longevity to at least age 95. Those calculations are then used to create a wealth income plan that sets accurate savings goals and sufficient investment strategies. How can someone invest their money if they don’t know the exact yield they need to reach their retirement goals?

My other grandmother, Lilian, came dangerously close to running out of retirement savings, living until just before her 98th birthday. When my grandfather passed away unexpectedly at age 76, Lilian lost one Social Security benefit, and at the same time, she began providing financial assistance to her youngest son, who was diagnosed with multiple sclerosis.

Unfortunately, many women fall into the sandwich generation as they put their own financial security at risk by taking care of the children below them in age and the aging parents above them. It also didn’t help that Lilian lacked any investment acumen, because her husband, Harry, had always taken care of their finances.

Women should feel empowered to take control of their financial future, but time and time again, I work with widows who are left in charge of their money without a plan or without a full understanding of their financial picture. By 2030, female Baby Boomers are expected to control the majority of wealth, totaling about $30 trillion in assets. With such a great wealth transfer expected, it’s critical that women are equipped to navigate their financial plan with confidence.

Financial advisers can act as a bridge when one spouse passes away, because we have a full understanding of our clients’ financial plans. As a trusted adviser, I can also serve as an educational resource. Blogs, books and other tools to improve financial literacy can naturally help women become confident with finances. Knowledge is power!

Rose’s and Lilian’s longevity led to more years of high health care costs. Recently retired women can expect to pay at least $157,000 in health and medical expenses in retirement, which is 30% more than what was needed just a decade ago. And costs are likely to continue rising!

Rose had no long-term care (LTC) insurance policy to help her pay for five years of in-home care, and Lilian’s traditional LTC policy did not stretch far enough to cover her in-home needs. Women should consider a LTC insurance policy and carefully choose one that is sufficient to provide for all their potential medical costs.

Traditional LTC plans charge policyholders a yearly premium in exchange for a certain amount of benefits, but yearly premiums can (and often do!) increase over time. Plus, if it goes unused, there is no benefit left behind to create a legacy for any beneficiaries, despite all the money spent on the policy.

A hybrid LTC policy creates a pool of benefits for the policyholder based on how much they want to contribute, and there are no premium increases. The premium creates a pool of LTC benefits that grows each year the policy is unused. These policies also have the ability to be surrendered at any time with a “return of premium” feature. They also come with a death benefit worth more than the premiums paid if the LTC benefits of the policy are never used, ensuring that no money is wasted on the policy.

Purchasing a life insurance policy with a death benefit can also act as a LTC policy. Many insurance companies allow policyholders to use 50% to 100% of their death benefit during their lifetime for any LTC, creating a sort of “living benefit” for policyholders. As a life insurance policy, this also provides a death benefit to any beneficiaries.

Another recommendation for women is to contribute to a health savings account (HSA) to combat longevity and health care challenges. HSAs offer a triple tax benefit: Money can be saved tax-free, it grows tax-free, and funds used for medical expenses can be used tax-free. Plus, there is no required minimum distribution (RMD) in retirement, and HSA dollars can be used for nonmedical expenses without penalty after age 65. 

It’s equally important to create guaranteed sources of income to use in retirement that work alongside strategic withdrawals and Social Security. For example, purchasing a fixed indexed annuity can create a lifetime of guaranteed income to use in retirement that will help combat longevity risk.

Longevity should be something to be celebrated, but unfortunately, it became a huge financial burden for my grandmothers and their loved ones. May their stories act as a valuable resource for future generations and an example of how important it is to have a comprehensive wealth plan that proactively plans for all your potential retirement needs and protects against longevity risk.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

It may not be especially nice to think about, but the fact is that as we all keep living longer, our likelihood of requiring long-term care is increasing, too. What that care looks like and how long we need it for are, of course, unique to every individual. But what’s true for many of us is that, financially speaking at least, we’re not as prepared as we could be.

A recent survey by LIMRA revealed that although 29% of respondents believed they owned some form of long-term care insurance coverage, the true figure was closer to 3%. A OneAmerica study also found that while 29% of consumers researched long-term care plans, only 16% went on to actually implement one.

So, if you haven’t yet started your own financial preparations for long-term care, you’re certainly not alone. And the good news is it’s not too late either. Here are five steps you can take today to get your long-term care planning on track.

1. Check out the National Association of Insurance Commissioners’ (NAIC) Shoppers Guide for Long-Term Care Insurance.

It’s free to download in both English and Spanish and completely product- and company-agnostic. It therefore offers you an unbiased frame of reference to use when thinking about long-term care coverage.

2. Communicate your plans with your loved ones.

Whether it’s a family member, relative or close friend, be sure to discuss your plans for long-term care with the people closest to you. In particular, think about the role everyone can have — one that makes them feel involved but also plays to their strengths.

For example, maybe your spouse will oversee actually paying your care bills, but one of your kids or a close friend is going to visit you every day for a coffee and a chat.
Be sure to regularly check that you have the right people named as beneficiaries and/or with access rights for your insurance contracts, too.

3. Figure out if you can self-fund.

As an American citizen, you’re entitled to long-term care that is paid for by the government. However, as you might expect, the standard of care in a public Medicaid facility can be quite different to what you may receive if you pay to go private. 

Review your finances and, if you’re in a position to self-fund, start actively preparing to do so now.

4. Find the right saving option for you.

If you’re going to self-fund, there are a few different ways to go about it.

• Standalone long-term care insurance. The premiums for these plans tend to be cheaper than for hybrid ones (more on those in a moment). However, they can be used only to fund long-term care, so if you don’t end up needing it, the money is essentially lost. (Some standalone products allow spouses to be covered by the same contract, increasing the chances that one of you will use it.)  The reimbursement rules can also be challenging from a liquidity perspective, as they require you to pay for the care yourself, then submit receipts to recover the cost.
• A life insurance contract that contains a long-term care rider. These cover both your life insurance and long-term care benefit in a single plan. Consequently, the premiums are more expensive than a standalone product, but the upside is that if you don’t end up using the money for long-term care, it’s simply passed on to your stated beneficiaries when you die. If the rider is used, it is paid out as an acceleration of the death benefit until either the benefit amount is exhausted or upon your death.
• Create your own “long-term care bucket.” Rather than paying for insurance coverage, you could use some other investment program or annuity contract to save for long-term care. Over time, such funds can grow considerably without any restrictions on how you use the money. However, you’ll need enough liquidity (and discipline!) to ensure you pay into the fund regularly for a number of years. Plus, unlike with most standalone or hybrid insurance policies, any funds you accrue won’t be covered by state level asset protection programs, known as partnership policies.

5. Consult a professional.

Selecting the right insurance coverage or savings plan from the various options available can be a complicated process. A qualified financial professional will help you sort through the details, make the complex simple and assist you in determining the approach that works for you. They can also help you integrate long-term care preparations into your overall financial plan.

Whatever the right long-term care plan for you, the most important thing is to have one. The sooner the better, too, because the earlier you start saving, the bigger your pot will be if and when the time comes.

Sadly, none of us can escape getting older. But by taking these steps today, you can ensure that both you and your budget are as prepared for tomorrow as possible.

This article has been obtained from an outside source and is provided as a courtesy by Stephen B. Dunbar III, JD, CLU, Executive Vice President of the Georgia Alabama Gulf Coast Branch, Equitable Advisors and Equitable Network do not legal or tax advice and make no representation as to the accuracy or completeness of this information. You should consult your own legal and tax advisors regarding your particular circumstances.

Stephen Dunbar offers securities through Equitable Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC (Equitable Financial Advisors in MI & TN).  Annuity and insurance products offered through Equitable Network, LLC. Equitable Network conducts business in CA as Equitable Network Insurance Agency of California, LLC, in UT as Equitable Network Insurance Agency of Utah, LLC, in PR as Equitable Network of Puerto Rico, Inc. AGE- 5489036.1(3/23)(Exp.3/25)

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Clients often bring to us their unique circumstances paired with specific goals, individual concerns and distinctive aspirations for their retirement years. Despite some differences, they all have one thing in common – they’re craving peace of mind and the certainty that what they’ve saved, no matter how much or little that may be, will cover everything they have planned. Retirement also brings about several risks that threaten certainty, such as longevity, market risk and inflation, followed by the two most common concerns — cost of long-term care and how to reduce or avoid taxes during retirement and upon transfer to heirs.

Both are legitimate concerns. There can be a significant loss of assets to health care costs and in paying extra taxes. Fortunately, there are several solutions for each obstacle. Unfortunately, there exists a tension for many families in planning to tackle one of these hurdles because it can seem to come at the cost of accepting the other. Typical methods for long-term care financing include long-term care insurance, life insurance with accelerated death benefits and asset protection trust planning. Common methods for estate and legacy tax mitigation include Roth conversions and revocable trust planning.

Long-Term Care Insurance (LTC)

LTC insurance is recommended for individuals and families under the age of 65 with $1.5 million to $3 million in investable assets. The reason for the limitation on net worth and age is because of the cost of coverage, compared to what you receive. What was intended and hoped for by many as a method of financing the rapidly escalating cost of assisted living and skilled medical care has instead become less of a total coverage of expenses and more of a hedge against the final bill.

With a chance of living in an elder care facility and the average stay often three or more years, plus the cost of skilled care, it’s no surprise this is a major source of retirement bankruptcies. LTC insurance was the answer to that, and for many years in the early 2000s, policies were sold that would protect a family.

However, as life expectancies with medical conditions increase, along with the rapidly rising cost of care, the premiums for LTC insurance have skyrocketed, and the terms/benefits offered have been dramatically reduced. As a result, these policies are not a good option for families with under $1.5 million in assets, as they are cost prohibitive. If someone has a few million in assets and a large income or cash flow, then it can make sense to have LTC insurance as a simple hedge.

For example, a typical policy might run $6,000 per person per year for a policy to cover a three-year stay in a facility at a max of $300 per day. If a married couple could cash-flow two policies without severely impacting their income and keep those policies for 25 years each, they would spend $300,000 in premiums for a potential offset of three years of care, for each, at $300 per day, for a total of $657,000 worth of care covered.

That is just a little more than 50% in savings per dollar spent on premiums. However, to get the full benefit, both would have to have full stays in a skilled facility for the maximum of the policy limits, which is unlikely.

On the other hand, the time the policy would buy can allow couples to move assets out of their names, thus pursuing other legal strategies and moving to avoid probate and taxes. Unfortunately, without significant assets and income, this is not a viable option for many.

Universal Life Insurance with Accelerated Benefit Riders

For those up to the age of 70 with $3 million to $5 million in investible assets, a better option than LTC insurance may be a universal life policy with accelerated benefit riders (ABRs). While the premiums they pay may be high, often $12,000 to $18,000 per year, such policies act as a multiuse tool, not only providing coverage for LTC, but often covering a significant amount of inherited taxes and providing the opportunity for wealth leveraging to the next generation.

ABRs are a special kind of life insurance rider triggered by medical conditions that allow the death benefit of the policy to be advanced to the owner during their lifetime, often up to 100% of the policy face value, for purposes of funding an extended stay in an assisted living or skilled care facility.

This is different than the terminal illness and viatical riders often found on life insurance, as this is not intended as a payout when a person is near death. Instead, this is for someone healthy who may be entering a facility for some time.

For example, an individual with a $750,000 universal life policy, paying $15,000 per year in premium, would be able to advance as much as they needed from the policy for as long as needed, thereby covering more than seven years in a facility at current rates.

A $15,000 premium paid for 25 years would amount to $375,000, thus giving a 2-to-1 leverage for dollars paid, which is further enhanced by the tax-free nature of life insurance proceeds and loans. Considering the average stay is three years, there may be as much as $450,000 left in the policy to be received tax-free by heirs.

People will often intend this remaining amount to cover residual taxes inherited by heirs from 401(k)s and IRAs, which with $3 million to $5 million of net worth can easily be thousands of dollars.

They may also intend to use proceeds as tax-free income for the surviving spouse, thus reducing taxable income and limiting the amount of income-related monthly adjustment amount increases to Medicare premiums and to reduce Social Security taxation.

This also becomes a way to limit qualified investible asset withdrawals to only required minimum distribution (RMDs).

Finally, the policy becomes a source of supplemental cash for the owner during their healthy years as well, as they can always elect to take a loan against the policy if their health is maintained.

Asset Protection Trust Planning

For those with a net worth less than $2 million, asset protection planning is essential to protect against the rising cost of long-term care. This is where the tension is felt most intensely, people have to choose to either defer or remove taxes or to protect assets from medical expenses. People often believe only the very wealthy benefit from trust planning. However, in our experience, those with fewer means have more to lose and therefore have more need for protection. It should be noted that, while a rising number of states recognize what is called a domestic asset protection trust, that is not the type of trust planning referenced here. Those trusts are designed as general creditor protection, but do not include the necessary language to protect assets from Medicaid spenddown or estate recovery.

Self-settled wholly discretionary grantor trusts, which are irrevocable, can be used to house certain assets that Medicaid would otherwise expect families to liquidate and spend prior to approving benefits to cover the bulk of the cost. It should be noted that in many states, certain provisions of irrevocable trusts can be changed, such as who serves as trustee and who the beneficiaries are (and in what amounts). The trustee should not be one of the grantors of the trust, and there is a five-year look-back on its funding. This means if a grantor needs long-term care prior to five years after assets were moved to the trust's name, other arrangements must be made.

For that reason, families are encouraged to start planning early – ideally just prior to or at retirement. The needs and goals of the family drive what assets are placed into trust, but not everything goes. From a tax perspective, it would be unwise to move IRAs or other qualified accounts into an irrevocable trust because such a transfer would be fully taxable as a complete distribution of the account. Roth IRAs can be moved tax-free into trust, but such accounts would then lose their Roth status.

Careful planning, preferably with advice from financial, legal and tax professionals, can establish a balance between maximizing protection and minimizing taxes. It is common for families to end up taking distributions from their IRAs over time, paying the taxes at the lowest possible tax bracket on those dollars, then moving those funds into trust where they can be reinvested. It is important to know your state laws around how Medicaid treats qualified accounts for long-term care planning.

Roth Conversions

Unlike 401(k)s and traditional IRAs, Roth IRAs receive the unique benefit of having investments grow and distribute tax-free. Although new money Roth contributions are limited per year to a few thousand dollars, Roth conversions from 401(k)s and traditional IRAs are unlimited. Many seek to undo the tax bomb waiting in their retirement accounts by converting those accounts to Roth IRAs over time, moving chunks of assets and paying the taxes, but staying within current tax brackets.

If done correctly, surviving spouses and heirs will have much lower inherited tax issues to unravel, and Roth owners can avoid spiking their taxable incomes due to withdrawals in their later retirement years.

Revocable Trust Planning

Revocable trusts have long been the preferred vehicle for estate planning for probate avoidance and tax mitigation strategies. For those with a net worth that is likely to run up against the estate tax at death, currently over $12 million per person, but likely dropping to $5 million or less, revocable trusts allow families to combine assets into one trust that splinters off after the death of the first spouse, which has the outcome of doubling the estate tax exemption (each spouse gets their own exemption).

When the federal estate tax kicked in for any estate worth more than $1 million, many more families had to plan appropriately for how to mitigate that risk. However, the current federal estate tax exemption is $12.92 million per person, which is automatically doubled for married couples. Such trust planning is only currently beneficial to families with a lower state estate tax exemption or who are likely to have estates worth more than $25.84 million. Future tax changes are likely to lower the threshold significantly to only a several million per person.

Revocable trusts can still provide tax benefits to families who are interested in requiring their beneficiaries to take distributions from inherited retirement accounts over time, rather than in a lump sum. If left to a beneficiary directly, that beneficiary may choose how and when they take distributions, but a revocable trust that has SECURE Act compliant language (meaning it requires full distribution within 10 years) can receive the funds and then direct the distributions over time.

In the context of long-term care, revocable trusts offer no protection because Medicaid looks at assets owned by a revocable trust the same as if the assets were in the individual’s name. Medicaid can force the revocation of a revocable trust to reach the assets held by that trust.

Taxes and Medicaid are two hot topics in retirement and estate planning, and both must be carefully considered. Under current laws, you can maximize protection in one area or the other, but not both. With competent, multifaceted evaluation and guidance, a healthy balance can usually be found that will offer peace of mind for today and every day to come.

John Graves takes pride in guiding his clients through the demanding retirement planning process with customized plans molded to help withstand whatever the future holds. John specializes in retirement planning and working with clients pre- and post-retirement who desire to protect their money and ensure it is there when they need it most. John and his team at G&H Financial Group pride themselves on building and maintaining long-lasting relationships with their clients and families. John’s career has always been in finance and asset protection. After law school he went to work for U.S. Bank N.A. Direct Lending in consumer financing as a federal regulatory officer. Raised in the bluegrass fields of Lexington, Kentucky, the heart of thoroughbred horse racing country, his parents and grandparents taught him that family and faith are the foundation of a successful life. John and his wife, Lindsay, with their four children, support that belief with their continuous involvement in the community and their faith. Family is what drives John to continue his passion for retirement planning. John has made it his mission to educate and teach others what they can do to assist that their retirement goals turn into reality. You can reach him at (330) 915-8030 and jgraves@gandhfg.com.

Lindsay Graves, founding partner of The Graves Law Firm, is passionate about assisting families through the challenges of the aging process to ensure dignity and financial preparedness with a comprehensive and compassionate approach. Her law firm focuses on helping clients to articulate their goals for asset preservation and long-term care and making them a reality, avoiding bankruptcy and securing wealth for loved ones. Lindsay and her team pride themselves on building and maintaining long-lasting relationships with their clients and families. Lindsay earned her Juris Doctorate from DePaul University in Chicago, where she served as law clerk for a renowned elder law firm representing clients in the areas of wills, trusts and guardianship. While at DePaul, she was honored to be elected to the Student Bar Association and was selected to compete on the school’s mock trial team. She studied internationally, being taught by the Honorable Chief Justice of the United States Supreme Court, John Roberts, at the University of Innsbruck’s Institute of World Legal Problems in Innsbruck, Austria. Her undergraduate degree is a B.S. in Business from the Miami University Farmer School of Business, where she graduated with honors. You can reach her at (330) 915-8010 and lgraves@graveselderlaw.com and find her on Facebook.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Long-term care insurance companies are restructuring and have been sending letters to policyholders about adjustments in coverage, increased premiums or paid-up options. Many policyholders are wondering how they should respond and what their options are.

Increases don’t happen overnight, and insurance carriers have to consult with their state insurance department for approval, and the state is in control of that decision. Sometimes the state will agree to the increase but with conditions, such as telling the insurance company not to come back with a request for a certain period. Increases are made for a class of policyholders, such as groups with common attributes like application dates and type of policy, so the insurance company is not singling out policyholders that may be more at risk of using benefits.

Some policyholders are concerned that even if they keep paying premiums, there may be no benefits available when they are needed. But due to the aging population, several policyholders will naturally drop off, and insurance companies are hoping that some policyholders will let their policies lapse instead of agreeing to rate increases.

Insurance companies are also finally getting some yield on reserves due to higher interest rates, so they should be able to cover future claims. Even if an insurance carrier fails, they tend to get bought out by another carrier to avoid the public losing confidence in the industry.

Long-Term Care Insurance Options Include Reduced Benefits

If the premiums are increased beyond affordability, some people will choose the payout (and lapse the policy), a paid-up option or reduced benefits. Some policyholders will not evaluate their options and cancel policies without consulting with an expert — this is good for the insurance companies, since they get the liability off the books.

Many insurance companies increase premiums over time, and you have no idea if or when this may happen. You might be paying $3,000 annually for a policy for 15 years, and the insurance company decides to raise your premium to $5,000. If you decide this is too costly after 15 years and cancel the policy, you have already paid $45,000 to the insurance company and have not used the benefit.

However, you should look at this like any other insurance product, such as homeowners — you are paying for peace of mind for a large risk, although the probability of a claim may be low.

Can You or Do You Want to Self-Insure?

The decision on whether to keep your long-term care insurance vs. self-insuring is a question many policyholders are now faced with. Whether to cancel the policy and lose what you have put in throughout the years, or pay the increased premiums and possibly have future increases, is a big financial decision. Some policyholders purchased policies when they were younger and accumulating assets and find as they are older, their nest egg has grown enough that they can sustain the costs without the insurance. You were insuring a risk that was there for a time.

Maintaining coverage can be very advantageous if you end up needing it and don’t want to spend down your assets to support the costs. If leaving a certain amount of assets to heirs or your spouse is important, even if you can self-insure you may still prefer to have the insurance company share some of the liability.

If you can afford to self-insure based on your long-term financial plan, then the choice boils down to whether you would like to retain the risk or share the risk with the insurance company and what amount of coverage to keep or adjust. The goal would be to take the worst-case scenario off the table, if possible.

A policyholder usually has the ability to adjust policy benefits down, but upping benefits may require new underwriting — you can always decrease coverage, but not increase. The insurance industry mispriced products in the past, so if you were to buy the same policy today (assuming the same age as when the original purchase occurred), it would be significantly more expensive.

Clients who cannot afford to self-insure because they do not have enough assets accumulated may be able to buy an LTC policy during their earlier years. As time progresses, there may be a point where their assets can support a long-term care event — and at this point, they can terminate their policy or modify it for less coverage.

Even if you modify coverage, this does not mean there will be no future increases. Keep in mind when a single person goes into LTC, their expenses may move laterally (you will probably sell your house and car and no longer travel, for example), but with a couple, if one goes into care and the other doesn’t, the other spouse still has their usual living expenses, so the couple is faced with increased costs.

What Are My Options?

Insurance companies usually send a few alternatives along with the notice of a premium increase, but if you are not happy with the options, you can ask for options based on what you can afford to, or want to, pay. The options you initially receive are usually skewed toward benefiting the insurance company and often look enticing to an inexperienced policyholder.

It is advisable to check with a licensed insurance professional before making a decision, as decreasing coverage or going along with a paid-up option may remove inflation adjustments, riders or increase waiting periods. Instead of having a 90-day elimination period (when you have to cover the costs before the policy kicks in), you may end up with 180 days.

If you are considering this decision as a purely financial one, the place to start would be to find the break-even cost of an event and how much you would have paid in premiums by that claim age. You would want to see the break-even of total premiums paid vs. the benefit pool available on the claim — if you end up using the benefits, you will usually be better off. You will also want to factor in inflation and the growth rate on the funds had you invested them otherwise until the age you go on claim.

You would also want to calculate what you would have saved on premiums in a side bucket at whatever age you are modeling to go on claim — what are you saving vs. losing in benefits?

Read the Fine Print

Insurance companies also offer hybrid long-term care products, such as LTC with a life insurance death benefit or annuity attachment, so it is important to determine what risk you would like to cover. Note that with these hybrid policies, going on claim could substantially reduce the death benefit.

LTC insurance can turn into a less-than-ideal investment at some point. The decision to buy is very individualized, and if you happen to use it early, such as in the first five to 10 years, it can be a good investment, because you have paid less in premiums upfront and are using the benefits.

However, the longer you take to use the benefits, the more sense it may make to just put money aside yourself if you can afford to self-insure. Of course, there is no way of knowing if and when an event will happen.

Note: We are not licensed insurance agents and cannot give insurance advice but can help you through the process of deciding what is best for you and provide a broad overview of the advantages and disadvantages. Please discuss this with your agent before purchasing or making any changes to your existing policies.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

About 7.5 million Americans have some form of long-term care insurance (LTCI), which is a policy that helps cover the daily living costs associated with health diagnoses not covered by standard health insurance. This coverage is crucial to people who experience a health crisis that dramatically affects their way of living, such as Alzheimer’s or mobility issues.

LTCI policyholders have significantly more options when it comes to housing or in-home health care than people who don’t. If you are lucky enough to have LTCI coverage, you may have questions about your policy. As someone who specializes in helping older adults prepare for their next phase of life, I’m often asked questions about LTCI. Based on some of the most common concerns I hear, I hope these insights below provide you with the necessary guidance to plan ahead for your future.

What Should I Do When My LTCI Premium Increases Each Year?

Keep your policy. Too many people drop their LTCI policies because they are upset by a 20% premium increase. After paying LTCI premiums for 20 or even 30 years, it’s hard to swallow increases, but the alternative of self-paying for assisted living or nursing home care can be even more costly. Instead, ask your LTCI company to reduce portions of your benefits rather than increase premiums. You can also ask your insurance company to run proposed tradeoff comparisons. Before dropping your policy, consider one of three options:

• How much do you need to reduce your daily benefit to keep your premiums steady?
• What happens to the premium if the total coverage pool is reduced from a five-year, $400,000 coverage cap to a three-year, $250,000 cap?
• What happens to the premiums with a reduction in inflation benefits from a 5% compounding feature to a 3.2% compounding rate?

Call the customer support phone number provided in the premium increase notification to discuss what options are available beyond what is initially presented. And make a point to know what the deadlines are for you to make a decision. Most of these premium increase notifications have a default election of the increased premium that goes into effect unless you elect differently.

When Can I Start Using My Long-Term Care Insurance Policy?

You need to meet certain criteria to activate your policy, like cognitive impairment, including Alzheimer's and other forms of dementia. You can also make an LTCI claim if you cannot perform two or more activities of daily living (ADLs) for at least 90 days. ADLs are bathing, dressing, continence/toileting, eating and transferring.

Your contract may have a waiting or elimination period (typically 90 to 100 days) before benefits are paid, so you will be responsible for all costs from when you first claim LTCI and when the elimination period ends.

Note that premium payments stop when you are in a claim period, which means you will not need to make any payments while you are receiving care.

Can I Use My Long-Term Care Insurance Policy If I Need Care at Home?

Each LTCI policy has slightly different terms for where care can take place. Your policy may pay different amounts depending on the location of the services (i.e., your home, assisted living community, nursing home). You need to read your policy to see if it covers home care aides, home health aides, care in assisted living or only care in nursing homes.

Note that if you choose home health aides or home care aides, you still must first meet the criteria for LTCI policies of cognitive impairment or needing assistance with at least two activities of daily living (mentioned above).

Why Do I Need to Worry About Long-Term Care Costs When I Have Long-Term Care Insurance?

"My long-term care costs are fully covered because I have long-term care insurance" is a statement I hear too frequently. Unfortunately, as this image illustrates (Source: Lifecare Affordability Plan), long-term care insurance covers only a portion of long-term care costs and services.

According to Genworth, the national average cost for assisted living is $54,000 annually, home health aides cost $62,000 annually, and nursing homes cost $108,000 annually. In some areas, the nursing home costs start much higher. Therefore, if you have an LTCI daily benefit of $200, it will only pay a portion of a $9,000 monthly fee.

The most frequent advice I give about long-term care insurance policies is: Read your policy. Too often, policyholders do not have a firm grasp of what coverages they have or how the policies work. Sometimes the policies themselves have been lost, and the only connection the policyholders have with the coverage is the annual premium notices.

If you lost your policy, get a new copy and take the time to understand your LTCI policy components. Call your long-term care insurance company and ask questions to be sure you understand what you have been paying for.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

There is no more popular watercooler talk these days than the exorbitant price of gas. As with all buying decisions, you must decide whether the benefit is worth the cost. In the case of filling your tank, if you rely on your vehicle to get you to your job, that analysis is pretty easy.

When it comes to long-term-care insurance, and all insurance for that matter, the immediate reward is not there. You have to pay today in exchange for the intangible benefit of security. All of this is to say, when that letter comes in the mail saying that your long-term-care insurance premium is increasing (again) by 20%, 40% or even 60%, it is an especially tough pill to swallow. After all, will you ever even use this insurance? In the next few paragraphs, I’ll give a bit of history to help you understand your options and figure out what makes sense for you.

Long-term-care insurance arrived on the scene in the late ’70s and, according to the American Academy of Actuaries, had an average issue age of 57. This caused two specific issues with pricing the policies accurately. First, because the insured will often not use these policies until very late in life, projections had to go out about 50 years. Second, in 1980 the yield on AAA corporate bonds was almost 12%. While this was historically high, most general accounts of insurance companies are made up of bonds. Fifty years of bad assumptions combined with longer life expectancies have led to significant losses in the long-term care insurance business. When an insurance company can prove that business case to the state insurance commissioner, the company is allowed to raise premiums.

When you get the bad news, here are four options:

The extremes:

Option #1. Cancel the policy

When the dreaded letter arrives, it comes with a “get out of jail (kind of free)” card. Typically, you will get a check for some portion of premiums you paid, and the policy will go away. Most of the people who take this option were “sold” the policy rather than “buying” it. That is, some insurance agent did a good job of convincing them they needed it. However, the buyer never was fully convinced of the benefits.

When does this make sense? When your financial situation has improved to the point where you can afford to self-insure. If you went into a facility for two to four years, you would be hurt financially but could afford it.

Option #2. Accept the full increase

The folks who write the biggest premium checks are often the ones who have had family members need long-term care. They “bought” the policy because they were already convinced of the utility and need.

When does this make sense? When you have significant retirement assets or income and/or you bought the policy as an estate preservation tool. Imagine you have $6 million in retirement assets. Entering a LTC facility in 15 years could wipe out $1 million pretty easily. You may accept the full increase as a bet that those premiums will total less than the cost of care and that the estate transferred to your kids will be worth it.

The middle ground:

Option #3. Accept one of the given options

The letter you receive from XYZ insurance company will come with two or three options in addition to the two above. Examples: 1) Reduce the cost-of-living adjustment, 2) Reduce the monthly or daily benefit, 3) Increase the elimination period, which is the period of time before benefits kick in.

When does this make sense? When one of those pieces of the policy falls way outside the averages. LongTermCare.gov tracks statistics for things like the average cost and duration of stay. Say, for example, your policy has a five-year benefit period and the average length of stay for a male is 2.2 years. If there is an option to reduce the benefit period to three years, I might recommend that path.

Option #4. Explore all options

This is always our starting point. It’s not to say that we won’t pick one of the above options, but we want to explore all available paths. There will be a phone number on the letter that will inevitably lead to long hold times. If you have a financial adviser, see if they have a better number to call. They often do. Once you get a representative on the phone, that person will be able to tell you the options that were not listed. There is often significant flexibility to adjust your policy to actually fit your needs.

When does this make sense? When you have a financial plan that shows you the exact gap you would have to cover if you were to need care. The best financial planning programs have LTC insurance needs analyses that can show your exact gap. Say, for example, if you need care you will have a shortfall of $200K. You would adjust the benefit pool in the policy to match that need.

Unfortunately, as you can see by the title of this column, difficult choices are inevitable for most people with traditional long-term-care policies. It is a space that is both shrinking and evolving. It’s shrinking in the number of companies willing to offer the traditional insurance product. It’s evolving with innovative new ways to pay for care. Always start with your need. Let your need dictate your plan. Let your plan dictate your product.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Long-term care insurance isn't for everyone. About a third of applicants are rejected, and that number is 40% for people ages 65 to 69, says Tom Beauregard, founder of HCG Secure, in Goshen, Conn., which develops and sells long- and short-term care insurance. "A good percentage are going to get rejected based on medical history, and a good percentage are going to look at the premiums and say, 'Well, that's unaffordable,'" says Beauregard. If you don't qualify for a plan or can't afford one, there are other options you might explore, including these six.

An Employer's Group Plan

Some employers offer long-term care insurance as an employee benefit. These plans accept people with health conditions even if they were disqualified from buying an individual policy.

Link to an Annuity

There are a number of ways to link long-term care to deferred annuities. One way is a a deferred fixed annuity with a long-term care insurance rider. With this option, once you demonstrate that you can't do two of the six activities of daily living, such as bathing or feeding yourself, the rider can be tapped, increasing the annuity payout typically by two to three times, says Marc Glickman, an actuary and chief executive officer of Los Angeles-based BuddyIns, which sells traditional and hybrid long-term care insurance.

In some cases, depending on the annuity and the type of long-term coverage, you don't need to qualify for it medically, so this may be a good choice for people with uninsurable chronic illnesses. But you do need a substantial sum of money available to put into the annuity, typically $100,000 or more.

Short-Term Care Insurance

A less expensive option, which is not available in all states, is a short-term plan. It only covers care for a year or less, up to a daily or weekly limit, Glickman says. "The reason people are using it is because they can't qualify for traditional long-term care, and they'd rather get the first year covered than not have any insurance at all," he adds.

The plans can be a particularly good option for someone who is ineligible for long-term coverage because of poor health, or is age 75 and older or a single woman. Unlike long-term care plans, short-term care insurance does not charge more for women. A 65-year-old man or woman could pay $63 a month for home care benefits of up to $1,050 weekly. The cost rises the older you are and the more robust the benefits, according to the American Association of Long-Term Care Insurance. Because many short-term care plans have no elimination period before the benefits kick in, the insurance can be used to cover the waiting period before a traditional long-term care policy will pay out.

Life Insurance

Some life insurance policies let you pay for care by tapping the death benefit while you're alive. A policy with accelerated benefits may limit the amount you can draw down to 70% to 80% of the maximum death benefit, but some companies let you take it all, says Robert Eaton, principal and consulting actuary with Milliman in Tampa, Fla.

Self-Fund

On your own or with the help of a financial planner, you could determine how much money to set aside for long-term care in a retirement or investment account. "Look at which investments you want to tap first to pay for your care. You need to put a plan together now, not when it happens," says Brian Gordon, president of Murray A. Gordon and Associates, a long-term care insurance broker in Bannockburn, Ill.

A State With a Plan

Or perhaps you should consider moving to the state of Washington. In 2019 the state became the first in the country to pass a law imposing a mandatory payroll tax that will fund up to $36,500 in benefits for individuals and cover an array of long-term care costs starting in 2026.

The law has been met with a lawsuit and fierce opposition, which delayed parts of the state program's implementation. Nonetheless, a number of states are watching Washington's situation closely, says Howard Gleckman, a senior fellow at the Urban Institute. "I think inevitably we will have a social insurance public long-term care program, either state by state or at the federal level," Gleckman says. "It's not going to happen soon, but it's inevitable we'll have to do it because it's an expense that's getting out of control."

Americans have plenty of reasons to dread buying traditional long-term care insurance. The policies are expensive, with rising annual premiums and so many different elements that shopping for one is overwhelming. "It can be a complex and oftentimes frustrating experience," says Tom Beauregard, founder of HCG Secure in Goshen, Conn., which sells long-term care insurance with a focus on aging at home.

The market and the policies have also evolved over the years. In fact, anyone whose idea of long-term care insurance was shaped by the policies their parents or grandparents had may be in for a rude awakening. "They're like Rolls Royce policies compared with what we have today," says Brian Gordon, president of Murray A. Gordon and Associates, a long-term care insurance broker in Bannockburn, Ill. "But they didn't cover home health care, so that's the give and take."

When the insurance first became widely available in the late 1970s, it was used mainly to pay for care in nursing homes, but the industry overestimated the number of lapsed policies and underestimated costs and customer life expectancies. Many insurers stopped selling the coverage, and now only about a dozen companies offer it, down from approximately 100 at one time. To keep the cost affordable, you may have to skimp on some policy features, or as the American Association for Long-Term Care Insurance says on its website: "It's very likely you'll pay more today for less plan coverage."

The Need for Care

Nevertheless, the insurance should be part of your conversation with a financial planner or broker specializing in long-term care, along with other options (see below). According to government figures, someone age 65 today has about a 70% chance of needing some type of long-term care. For women, the need for care lasts, on average, 3.7 years; for men, it's 2.2 years.

Costs vary widely depending on the type of care and the location. Nationally, the median hourly cost of a home health aide is $169 daily, compared with assisted living at $148 and a semiprivate room in a nursing home at $260 a day, according to Genworth's Cost of Care survey. A home health aide might seem less expensive than a nursing home on a daily basis but not if 24-hour care is needed. Meanwhile, the cost of all care keeps growing. Between 2004, when the survey first began, and 2020, the cost of care in all three categories increased, on average, by 1.8% to 3.8% annually.

Medicare will not cover most long-term care costs, and Medicaid is difficult to qualify for as the person needing care generally may not have more than $2,000 in assets, with the exact amount varying by state. To encourage people to pay for their own care, most states have long-term care insurance partnership programs that exempt benefits already paid by a qualifying policy when determining assets for Medicaid.

For example, if you exhausted your policy and received $600,000 in long-term care insurance benefits, the state lets you keep up to $602,000 in assets and still qualify for Medicaid. Check if your state has such a program. If it does, the state insurance department should list participating insurers. "It doesn't cost you anything extra to get a partnership plan, and it allows you to buy a shorter plan and still feel like you have catastrophic care protected," through Medicaid, says Marc Glickman, an actuary and chief executive officer of Los Angeles-based BuddyIns, which sells long-term care insurance nationwide.

Age, gender and health play a big part in the premium. The younger you are when you buy your policy, the cheaper it will be. According to the American Association for Long-Term Care Insurance and its 2022 price index, a couple that buys insurance at age 55 can expect to pay $2,080 for two policies covering up to $165,000 of benefits each. The same policies for a couple at age 65 is $3,750.

Because women tend to live longer and make more claims, their premiums can be as much as 70% more. Autoimmune diseases, hypertension, diabetes and obesity, among other things, can all push the price up 25% to 50%, assuming the applicant isn't declined, Gordon says, and people with Parkinson's, multiple sclerosis and similar neurological diseases can't qualify at all.

A Pool of Dollars

Almost all traditional policies now cover a combination of care at home and in an assisted living facility, nursing home or adult day center. The policy's benefit period and maximum daily benefit, both of which you select, determine the total amount of coverage. The benefit period is the duration when benefits are paid, but the payout amount is capped daily. The average benefit period is three to five years with an average maximum daily reimbursement of $150.

Although the benefit period can never shrink, it can run longer. If, say, you have a three-year policy with $150 max in daily benefits but only use $75 daily, the amount left over will extend the policy's duration until the money runs out. If your costs are $250 a day, you can't use up your policy faster to cover the excess spending. Instead, the benefit period remains at three years, and you need to pay any amount exceeding the daily cap out of pocket. Jesse Slome, executive director of the American Association for Long-Term Care Insurance, says to think in terms of the total dollar amount of coverage (daily cap multiplied by benefit period). "Ultimately you have a pool of dollars to use."

How much coverage to buy depends on the costs of care locally, how much of that care you can pay for yourself, and the insurance premium you can afford. You can compare rates for different types of care by zip code using Genworth's online calculator.

If you can afford it, most experts recommend getting some inflation protection. You can choose simple or compounded and the percentage. According to figures from the American Association for Long-Term Care Insurance, a single 55-year-old woman in good health can expect to pay an average of $1,500 a year for a traditional long-term care policy with a $165,000 pool of benefits and no inflation protection. That's an approximately $150 daily benefit over three years. Adding 1% of compounded inflation protection raises the annual premium to about $2,150, but at age 85, her benefits pool will be $222,400. With 3% compounded inflation protection, the premium jumps to $3,700 annually for a $400,500 pool of benefits at age 85. "All stand-alone long-term care policies have to offer inflation protection, and they usually give a number of different options," says Robert Eaton, principal and consulting actuary with Milliman in Tampa, Fla. The choices usually include inflation protection ranging from 1% to 5%.

Couples may want to consider shared care. This provision lets one spouse, who has used up the benefits in their own policy, tap the other spouse's benefits. "You [might] get six years for each person and then another six years that two people can share," says Glickman. Some policies may offer a third pool of money that each spouse can dip into after exhausting their own separate coverage. Shared care adds about 18% to 25% to the premium, Gordon says, but it also means you can buy policies with shorter terms, knowing that you have different benefit pools to work with.

Benefits are triggered once you have a recognized cognitive impairment or can't do two of six activities of daily living without help: eating, bathing, dressing, toileting, continence and mobility. Either your own doctor or the insurer's own health professional does the assessment, certifying the claim. But just because the benefits are triggered doesn't mean the policy pays out straight away. All policies have an elimination period, the time between when a claim is filed and when it starts paying benefits, usually 90 days.

Insurers calculate this period differently. Some companies use a service day waiting period and count only the days you receive paid care. Others count from the day you become eligible, known as a calendar day waiting period. If you only receive three days of care a week and the policy has a 90-day elimination period that counts only service days, it could take seven months before the insurance kicks in, Gordon says. Most insurers don't count informal care from family members as part of the waiting period. Gordon notes that you may be able to buy an enhanced elimination rider that counts one day of care a week as seven days.

Extending the elimination period beyond 90 days lowers the annual premium, but Gordon says, if you're struggling to pay premiums, "the last thing you want to do is incur additional costs upfront." At the same time, he adds, "I don't want anyone to pay for premiums at the top of their budgets because they do go up."

Managing Rising Premiums

That's what happened to Ellen Dichner, a lawyer in Brooklyn. She purchased a traditional long-term care policy for her husband and herself through her employer's insurance broker in 2004, when they were in their 50s. The couple's premiums have risen several hundred dollars over the years. Recently, when the premium was about to increase again, the insurer asked if she would prefer to cut her policy's duration or maximum daily benefit instead.

Because her daily benefit of about $600 is high, she is considering reducing that limit to avoid a premium increase, something experts say is the smart way to go. "I'm glad we have it, but when I see it go up, I wonder if we'll ever get our money's worth" says Dichner, who has paid $50,000 in premiums so far. Tim Jost, a professor emeritus at Washington and Lee University School of Law in Lexington, Va., says his semiannual premium for a policy he bought about 20 years ago was $750 for many years. Then it went from $750 to $1,275, and this year it's increasing again to $1,911.

Insurers only stop charging the annual premium once a claim is made. If your premiums have risen to the point where you are in danger of letting the policy lapse, contact the insurer. You may be able to ask for a shorter policy length, lower daily benefit or a longer elimination period. If the rate increase means you can't afford the policy anymore, check if it provides contingent nonforfeiture. That allows you to collect care benefits up to the amount of premiums you have already paid. Some states require policies to contain contingent nonforfeiture if premiums rise by a certain percentage.

Uncle Sam also eases the pain of rising premiums with a tax benefit that gets more generous the older you are. In 2022, people ages 51 to 60 can deduct up to $1,690 of long-term care insurance premiums as a medical expense; the amount is $4,510 for those 61 to 70, and $5,640 for anyone older.

Hybrid Long-Term Care Policies Do Double Duty

Experts say you should be shown the features of four policies -- two traditional and two hybrid -- before buying long-term care coverage. Hybrid policies offer an alternative to a traditional long-term care plan. The most common type of hybrid is a life insurance policy linked to long-term care insurance. Typically, the life insurance's death benefit is tapped first to pay for long-term care; once the death benefit is exhausted, the long-term care portion of the policy kicks in.

Unlike traditional long-term care insurance, hybrid policies have more flexible benefits, and beneficiaries get their money back for any partial or unused benefits. Best of all, the premiums are fixed for life and can be paid as one lump sum or over five to 20 years, says Brian Gordon, president of Murray A. Gordon and Associates, a long-term care insurance broker in Bannockburn, Ill. A policyholder who makes a claim before the premiums are paid off may have to continue paying premiums or see the benefits reduced.

Hybrid long-term care policies typically cost two to three times more than traditional coverage. "They're doing double duty," offering both life and long-term care insurance, says Jesse Slome, executive director of the American Association for Long-Term Care Insurance. But "if your true need is life insurance in order [to] leave something to your beneficiaries, then you should buy life insurance and separate long-term care insurance," Gordon says.

Slome cautions that some hybrid policies only cover chronic illness, triggering coverage under far more limited circumstances than the two-activities-of-daily-living standard used for long-term care insurance. That could mean a big difference in how and which claims are paid. A chronic care policy is required to state in the contract that it is not a long-term care policy. Slome suggests consumers ask for a generic copy of the policy as verification before buying.

One type of insurance is not necessarily better than the other, says Marc Glickman, CEO of Los Angeles-based BuddyIns, which sells traditional and hybrid policies nationwide. His extended family own both types of insurance. It's whichever policy meets the buyer's "needs, budget and health, combined with what is available in the market, that offers the best value."

Americans would like nothing more than to live in their own homes in their old age. Can short-term care insurance help them do it? The plans have a good, bad and ugly side worthy of a Clint Eastwood movie and require a squinty-eyed analysis to gauge their value.

On the plus side, "short-term care plans fill the need for those who want some protection, but are too old, too unhealthy or cannot afford long-term care insurance," said Jesse Slome, director of the American Association for Long-Term Care Insurance. The downside is short-term policies only cover care for one year or less, limiting how much they pay out per day or week.

Although the policies are more affordable than long-term care insurance, you also get less for your money. For example, a short-term care policy covering $1,050 of home care a week for up to 52 weeks would cost a 65-year-old woman in Illinois $63 a month, according to AALTCI. If that same policy also covers nursing homes, the cost is $125 per month, but that care is considered a separate benefit that pays only up to $200 per day for 365 days after a 100-day waiting period. 

By comparison, a long-term care policy would cost that same applicant $175 a month if she is in good health or $258 a month if she has some health conditions and pay for roughly three years of care at home or 18 months in a facility, after a similar waiting period.

Short-term insurance plans: The Good

Short-term care plans do have one big benefit, though: "People will have an easier time getting insured," said  Slome, adding, "It's a great planning option for those who only want a home care benefit." 

The policies accept applicants at much older ages than long-term care insurance, potentially up to age 89, and have simpler medical underwriting. To screen applicants, the applications mainly use yes or no health questions, such as "Have you had a heart attack in the past 24 months?" or "Are you currently using a walker?"

For women, the unisex pricing is particularly attractive, whereas long-term care insurance policies typically charge women 40% more because their average number of claims is higher, said Slome.

Short-term insurance plans: The Bad

Those advantages weren't enough to convince Skip Skolnik, founder of Skolnik Retirement Solutions in Elyria, Ohio, that the policies are worth getting when the median annual cost of a private room in a nursing home is a little over $100,000 and a home health aide is more than half that amount. 

"It's like trying to cover a gaping wound with a Band-Aid," he said. Someone with financial assets of $200,000 or more "could cover the costs themselves for a few months," he said. "The real risk is a need that lasts years." People with more limited assets typically qualify for Medicaid and don't need extra private insurance, he added.

Even Medicare will cover short-term care at home and in a facility in some situations. For example, if you need home care to recover from a specific injury or illness, Medicare will pay for a home health aide for up to 60 days and could even extend that period if the care is deemed medically necessary. As a result, you may already have a chunk of this short-term need covered.

Short-term insurance plans: The Ugly

Short-term care policies aren't easy to find. A number of states, including California, Florida, Massachusetts and New York, ban the policies from their insurance markets in part because the benefits are considered too skimpy. 

Even if you live in a state where short-term care plans are sold, most insurers don't want to deal with them. "Short-term care is not on anyone's radar," said Patrick Simasko, elder law attorney with Simasko Law in Mount Clemens, Mich.

Only some insurers - Aetna, Medico and Standard Life, for example - offer short-term care policies, said Slome; his association's website can refer you to others. In addition, he says, "there are very few agents versed in these policies." Because most people who look into short-term care have health problems, Slome recommended using an agent who understands this type of insurance and the underwriting for it.

Someone who can afford and qualify for more generous long-term care coverage is probably better off getting that instead, but despite their limitations, short-term policies do serve a purpose, Slome said. "Most people have nothing for this type of coverage. A year is better than nothing."

Related Content

• Long-Term Care Insurance: 10 Things You Should Know
• Retirees, It's Not Too Late to Buy Life Insurance
• How to Pay for Long Term Care

It's daunting to consider, but if something tragic happens and you need years of long-term care, how would you pay for it? The costs of long-term care are already exorbitant and will only get worse. Last year, the national median annual cost of a home health aide was more than $61,000, a 12.5% increase from 2020, while a private room in a nursing home cost more than $108,000, an uptick of 2.4%, according to insurance company Genworth. By 2031, a home health aide could cost about $83,000 a year, and a private room in a nursing home is expected to be roughly $145,700 annually, Genworth says.

Medicare largely doesn't cover long-term care costs, and Medicaid only kicks in for the poorest of families. As for long-term care insurance, the soaring premiums have become unaffordable for many.

That leaves self-funding to pay for long-term care, an option that can only work if you plan ahead and set aside enough money. How to pay for long-term care is never a pleasant subject, says Christine Benz, director of personal finance for Morningstar and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances (Wiley, $19.95). "But not creating a plan, not looking at the risks, is the biggest mistake people make."

Understand Your Resources

Knowing what to expect in terms of government assistance, help from family and the benefits of a long-term care policy, if you have one, will give you a clearer picture of how much money to allocate for long-term care. "It's helpful to know where you fall on the spectrum," Benz says. "On the one side, there are those with very few assets who need long-term care provided by family members or by the government. Then on the other side there are people who have a lot of assets and more of a margin for error."

People with low income and few assets might be able to qualify for Medicaid, which can help cover the costs of assisted living services and in-home care. Each state sets its own eligibility requirements, though in 2022 an individual generally needs to have income of less than $2,523 a month and no more than $2,000 in assets to qualify for Medicaid. Up to $3,435 a month in income may be allocated to a spouse, who is also permitted to keep $137,400 in assets for 2022 along with a primary residence, car and other nonluxury personal belongings.

If you are a veteran, Aid and Attendance is an underused pension benefit that can help veterans and their spouses pay for long-term care, says Barbara Franklin, owner and founder of Franklin & Associates in Charleston, S.C., which helps clients plan for long-term care. The program has income limits and other requirements and can be difficult to navigate, she says, but it is worth the effort. Her father-in-law, who served in World War II, received $1,800 a month through the program to pay for his care.

If you expect family members to help care for you, have those discussions in advance. Don't assume your children or other relatives will be willing or able to fill this role or that all care can be done for free. You should outline the services family members will provide and their compensation in a personal care agreement, Benz says. "If they have to give up their job to care for you, that has big financial implications," says Wade Pfau, professor of retirement income at the American College of Financial Services in King of Prussia, Pa.

If you're fortunate enough to have long-term care insurance, find out what it covers and if you'll need to supplement that coverage using your savings. Policies can be structured differently to pay for varying amounts of care, Pfau warns. "One policy covers X dollar amount per day or per month but only for so long. For example, it could cover up to $4,000 a month for 36 months and that's the maximum you can get."

Get a Handle on Potential Costs

Because of all the unknown variables, estimating longterm care costs is tricky. "We don't know what anyone's needs are going to be, and the range of what you could need is huge," says Larry Pershing, founder and CEO of Optimum Retirement Planning in Chicago. Less than half of those age 65 and older will not need paid long-term care, while roughly a third will require less than two years of paid care, according to research from the U.S. Department of Health and Human Services. But 14% will need two to four years of care, and roughly 9% will need at least five years.

Pershing recommends that individuals set aside enough savings to pay for at least three years of longterm care. Couples should budget for five years, though the funds should be in a "flexible pool so you can use it for either person," he says. "Maybe one person needs one year of care and the other needs four." Geography plays a big role in the cost. Louisiana had the lowest long-term care costs for one year of care at roughly $90,000, while Arkansas was the most expensive at more than $474,000, according to data from HealthView Services, a company that makes health care cost-projection software.

An online tool from Genworth lets you compare the median costs of different types of care, such as a home health aide, assisted living facility and a private room in a nursing home, by zip code. You can estimate future costs through the year 2071 using different rates of annual inflation. Pfau recommends that seniors factor in about 5% annual inflation. Long-term care costs have risen faster than the consumer price index, he says.

If you are planning to stay in your home, don't assume home-based care will be cheaper than moving to a facility, Benz says. "Remember, if that's your plan, you are paying for home maintenance, food costs, in-home care." Be sure to include estimates for any renovations you may need, such as installing a walk-in shower, to continue living in your home.

Keep the Money in the Right Place

Once you've estimated your long-term care costs, factor them into your retirement savings goal, which may need to be adjusted higher as a result.

Benz recommends keeping funds meant for longterm care expenses in a traditional IRA, even though these withdrawals are taxable. The taxes, though, may be offset by the deduction for medical expenses that you will likely qualify for if you need extensive longterm care, according to Benz, who wrote about the various components of self-funding long-term care for Morningstar. For 2022, you can deduct health care expenses that are more than 7.5% of your adjusted gross income. Plus, required minimum distributions are mandatory later in retirement -- starting at age 72 -- when you are more likely to need long-term care. Because of that, you may be at the point where you are forced to withdraw your traditional IRA funds anyway, Benz wrote.

It makes less sense to earmark funds for long-term care in a Roth IRA. These withdrawals aren't taxable, so you probably won't get the benefit of deducting medical expenses. Plus, Roth accounts are more advantageous to leave to heirs who won't be taxed on the withdrawals.

Some retirees plan on using their home as their nest egg to pay for long-term care, which is risky. For one thing, many homeowners assume their property will always appreciate in value, but the 2008 financial crisis and the prolonged downturn in the housing market that followed proved that this isn't always the case. If housing prices plummet right when you must sell your home to pay for long-term care, you could be in a bind. "You are putting all of your eggs into one basket for funding," says Pershing, adding that anyone whose house has decreased in value should assume zero price appreciation when estimating how much money is needed from savings to self-fund long-term care.

Selling a home can also be an emotionally charged process, especially if you have lived there for decades. Sometimes, retirees change their mind when the time comes to sell the property, or their children may express an interest in keeping the house in the family. "People may have difficulty anticipating their future self," Pershing says.

Time is running out if you haven't already filed your 2021 federal tax return. For most people, the tax return filing deadline is April 18 this year (residents of Maine and Massachusetts get one extra day). So, for all you tax procrastinators out there, it's time to get moving. One of the first things you should do is collect and organize your tax records. If you're going to file your own 1040, you should also check out tax software options. If you need more time to file your return, request a tax filing extension (although you'll still have to pay any tax you expect to owe). And, no matter when you fill out your 2021 tax return, you first want to familiarize yourself with the tax law changes that may impact it.

Many (but not all) of the new items on the 2021 1040 form come from the American Rescue Plan Act, which was enacted last March. This Covid-relief bill made changes to the child tax credit, child and dependent care credit, earned income tax credit, and more. Other changes stem from the expiration of earlier Covid-related provisions that expired at the end of 2020. There are a few modifications to some of the main 1040 schedules, too. And, of course, there are the normal inflation-based adjustments that occur every year.

There are many reasons why you should know and understanding these changes up front. First and foremost, it very well may result in a larger tax refund or a smaller tax bill. You're also likely to get through your return faster if you're already aware of any new twists and turns. If someone else prepares your 1040, it will be easier to catch any errors when you review the return. But since "Tax Day" is right around the corner, you don't have much time left to get up-to-speed on what's new and changed for your 2021 tax return. So take a look at our list below and study up now so you know what to look for before tackling your 1040.

"Tax Day" is the day that federal personal income tax returns are due. It was delayed the past two years because of COVID-19. In 2020, Tax Day was pushed back to July 15, and last year it was moved to May 17. This year, however, the tax return filing deadline is moved back to its normal spot on the calendar…well, sort of.

Federal income tax returns are normally due on April 15. But this year most 2021 tax returns aren't due until April 18. That's because of a holiday in the District of Columbia. If you live in Maine or Massachusetts, your federal return isn't due until April 19, thanks to a local holiday in those states. Victims of certain recent natural disaster can wait even longer to file their return.

There are some subtle, but important, changes to the 1040 form itself for 2021 tax returns. Generally, they're needed to account for changes to the tax laws that are discussed below. For instance, the line on page 1 of the 1040 used for reporting the $300 deduction for charitable cash contributions was moved down on the form so that the deduction no longer impacts your federal adjusted gross income (AGI). This is important because your federal AGI is used to calculate several other tax breaks and obligations. It's also used by many states as the starting point for determining your state income tax liability.

Lines 19 and 28 on page 2 of the 1040 form were also adjusted to account for the fact that the child tax credit is fully refundable for the 2021 tax year. Line 27 was also modified and expanded (including a new check box) to satisfy changes to the earned income tax credit. (See more about changes to the child tax credit and earned income credit below.)

The idea of having a postcard-size tax form has been totally abandoned, too. We see this in the expansion of Schedules 1, 2, and 3 that go with the 1040 form. For 2020 returns, each of these schedules fit on one page. Now, for 2021 tax returns, they're each two pages long. The extra length is due to various additions to income, "above-the-line" deductions, extra taxes, and less common credits now getting their own line on these forms instead of being lump together as an "other" item to include.

Approximately 90% of all taxpayers claim the standard deduction instead of itemized deductions. Fortunately, the standard deduction amounts you'll use on your 2021 tax return are larger than last year, thanks to the annual adjustment for inflation. For the 1040 form you'll complete this year, married couples filing a joint return can claim a $25,100 standard deduction. That's a $300 increase over the 2020 tax year amount. For each spouse 65 years of age or older, you can tack on an additional $1,350 ($1,300 for 2020).

Single filers can claim a $12,550 standard deduction on their 2021 tax return ($12,400 for 2020). That jumps to $14,250 if you're at least 65 years old ($14,050 for 2020).

For head-of-household filers, the standard deduction for 2021 tax returns is $18,800 ($18,650 for 2020), plus an additional $1,700 if they're at least 65 years old.

Regardless of their filing status, blind people can add an additional $1,350 to their 2021 standard deduction ($1,700 if they're unmarried and not a surviving spouse).

The tax rates you'll see on your 2021 tax return are the same as they were last year: 10%, 12%, 22%, 24%, 32%, 35% and 37%. However, the income ranges that apply to each tax rate bracket have changed. Use the tables below to find the appropriate tax bracket for your 2021 return. It's based on your filing status and taxable income (Line 15 of your 1040 form).

Remember, though, that the tax rate associated with the bracket you fall into doesn't apply to all your income. It only applies to the amount of your taxable income that's within the bracket's range. So, for example, if you're single with $50,000 of taxable income in 2021, only the last $9,475 of your taxable income is taxed at the 22% rate ($50,000 - $40,525 = $9,475). The rest is taxed at either the 10% or 12% rate.

2021 Tax Brackets for Single Filers and Married Couples Filing Jointly

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2021 Tax Brackets for Married Couples Filing Separately and Head-of-Household Filers

If you hold on to a capital asset (e.g., stocks, bonds, real estate, art, etc.) for at least one year, any gains from the sale of the asset are taxed at a lower capital gains rate – either 0%, 15%, or 20%. The same rates apply to qualified dividends. Which rate applies to you depends on your taxable income.

For your 2021 federal income tax return, the 0% rate applies if you're single with taxable income up to $40,400 ($40,000 for 2020), a head-of-household filer with taxable income up to $54,100 ($53,600 for 2020), or a married couple filing a joint return with up to $80,800 of taxable income ($80,000 for 2020).

The 20% rate kicks in at $445,851 of taxable income for single filers ($441,451 for 2020), $473,751 for head-of-household filers ($469,051 for 2020), and $501,601 for joint filers ($496,601 for 2020).

If your taxable income falls between the 0% and 20% thresholds for your filing status, then the 15% rate applies.

As mentioned above, the $300 deduction for cash contributions to charity no longer affects your federal AGI. There's also another important change to this deduction for 2021 tax year returns – married couples can now deduct up to $600. For 2020 returns, married couples who filed jointly could only deduct $300. However, one deduction is allowed per person now, which means each spouse can deduct up to $300 on a joint 2021 return.

Note that this deduction is only available if you claim the standard deduction. It also expired at the end of 2021, so you won't be able to claim it on your 2022 return.

Several significant upgrades to the 2021 earned income tax credit (EITC) were made by the American Rescue Plan Act. The biggest changes will allow more childless workers to claim the EITC on their 2021 tax return. For one thing, the minimum age for claiming the credit without a qualifying child is lowered from 25 to 19 (except for certain full-time students). Workers over the age of 65 can claim the credit on their 2021 return, too. The maximum credit available for workers without a qualifying child also jumps from $543 to $1,502. Expanded eligibility rules for former foster youth and homeless youth were put in place for the 2021 tax year as well.

While the modified rules listed above for childless workers only apply for the 2021 tax year, the American Rescue Plan Act made a few other changes to the EITC that are permanent. For example, the $3,650 limit on a worker's investment income is bumped up to $10,000, and the cap will be adjusted for inflation each year going forward. In addition, certain married couples who are separated can now claim the credit on separate tax returns. And certain workers who can't satisfy the EITC identification requirements for their children can now qualify for the credit as a childless worker.

Finally, as with the 2020 EITC, you can use your 2019 earned income to calculate your 2021 EITC if it's more than your 2021 earned income. Since this can increase or decrease your EITC, calculate the credit using both your 2019 and 2021 earned income to see which method will save you the most money.

To calculate your EITC, complete the worksheets associated with Lines 27a, 27b, and 27c of Form 1040 in the instructions for Form 1040. If you have a qualifying child, also complete Schedule EIC and attach it to your 1040 form.

As with the earned income tax credit, the American Rescue Plan Act made major improvements to the child tax credit for the 2021 tax year. For instance, the credit amount for 2021 tax returns was increased from $2,000-per-child to $3,000-per-child six to 17 years of age and to $3,600-per-child five years old and younger. However, the extra $1,000 or $1,600 is phased out for single filers with a federal AGI above $75,000, head-of-household filers with a federal AGI above $112,500, and joint filers with a federal AGI above $150,000. The credit is further reduced under pre-existing rules for single and head-of-household filers with a federal AGI above $200,000 and married couples filing jointly with a federal AGI above $400,000.

Any child tax credit claimed on your 2021 return is also fully refundable for most parents, even if you don't have any earned income (normally, the credit is only partially refundable – up to $1,400-per-child – and you must have at least $2,500 of earned income). Children who are 17 years old also qualify for the 2021 credit (child normally must be 16 or younger to qualify). Finally, unless you opted-out of the payments, families received 50% of their estimated 2021 child tax credit amount in advance through monthly payments sent between July 15 and December 15 last year.

To calculate the child tax credit allowed on your 2021 tax return, you must subtract the monthly payments you received last year from the total credit that you're otherwise entitled to claim for the 2021 tax year. (The IRS will send you a Letter 6419 showing the amount paid to you in monthly payments.) If the total child tax credit amount is more than your combined monthly payments, you can claim the excess amount as a credit on your return. However, if the total credit amount is less than your payments, you might have to pay back the extra child credit payments.

Use Schedule 8812 to reconcile the advance payments you received last year with the actual child tax credit you're entitled to claim on your 1040 form, and to see if you need to pay back any payments (they will be paid back in the form of an additional tax calculated Part III of the schedule).

For more information about claiming the 2021 credit, see Child Tax Credit FAQs for Your 2021 Tax Return.

Parents benefiting from the child tax credit enhancements may be able to cut their 2021 tax bill even further because of big changes to the child and dependent care credit made by the American Rescue Plan Act. For example, the maximum credit is increased from 35% to 50% of eligible expenses for the 2021 tax year. Plus, the credit percentage won't be reduced for families making less than $125,000 a year (instead of $15,000 per year), and all taxpayers earning less than $438,000 can claim at least a partial credit on their 2021 return.

The 2021 credit applies to more child or dependent care expenses, too. The credit percentage is applied to as much as $8,000 of eligible expenses for one child/disabled person and up to $16,000 of expenses for two or more (the amounts are usually $3,000 and $6,000, respectively). That means the total credit amount can be as high as $4,000 if you have just one child/disabled person and $8,000 if you have more ($1,050 and $2,100, respectively, for 2020).

The child and dependent care credit for the 2021 tax year is also fully refundable for most people (it's usually a nonrefundable credit). Form 2441 is used to calculate the credit.

See Your Child Care Tax Credit May Be Bigger on Your 2021 Tax Return for details.

The American Rescue Plan Act improved the premium tax credit for 2021 and 2022 to lower premiums for people who buy health insurance through an Obamacare exchange (e.g., HealthCare.gov) on their own. The credit amount was increased for eligible taxpayers by reducing the percentage of annual income that households are required to contribute toward their health insurance premium. The law also allowed the credit to be claimed by people with an income above 400% of the federal poverty line.

For certain people who purchase health insurance through an exchange, an estimated premium tax credit amount is paid in advance to the insurance company. If advance payments are made on your behalf, you must reconcile the credit and the advance payments when you file your tax return. If the advance payments are greater than the actual allowable credit, the difference (subject to certain repayment caps) usually must be paid back. However, the American Rescue Plan Act eliminated the repayment requirement – but only for the 2020 tax year. As a result, excess advance payments made in 2021 will have to be repaid when you file your 2021 tax return.

Use Form 8962 to calculate your premium tax credit and reconcile it with any advance payments. Also make sure you submit Form 8962 with the rest of your 2021 tax return.

The nonrefundable credit for expenses related to the adoption of a child is a little larger for the 2021 tax year. For 1040 forms filed this year, the credit can be worth up to $14,440 ($14,300 for 2020). Plus, the full credit is available for a special-needs adoption, even if it costs less.

The credit begins to phase out if your modified AGI is over $216,660 and it's eliminated altogether if your modified AGI reaches $256,660 ($214,520 and $254,520, respectively, for 2020). To claim the credit, complete Form 8839 and report the credit amount on Line 6c of Schedule 3. Also submit Form 8839 with the rest of your 2021 tax return.

The income tax exclusion for company-paid adoption aid was also increased from $14,300 to $14,440 for the 2021 tax year.

The alternative minimum tax (AMT) was originally designed to hit only wealthier Americans. However, the AMT exemption amount wasn't always adjusted annual for inflation – but it is now. For the 2021 tax year, the AMT exemption jumped from $113,400 to $114,600 for married couples filing a joint return and from $72,900 to $73,600 for single and head-of-household filers.

The phase-out ranges for the AMT exemption are adjusted for inflation each year, too. For 2021 tax returns, the exemption is gradually reduced and can ultimately be eliminated if alternative minimum taxable income (AMTI) on a joint return is between $1,047,200 and $1,505,600 ($1,036,800 and $1,490,400 for 2020). For single and head-of-household filers, the 2021 phase-out range is $523,600 to $818,000 of AMTI ($518,400 to $810,000 for 2020). The 2021 range for married people filing a separate return is $523,600 to $752,800 ($518,400 to $745,200 for 2020).

In addition, the 28% AMT tax rate doesn't kick on 2021 tax returns until you hit $199,900 of AMTI. That's an increase over the 2020 threshold, which was AMTI of $197,900 or more.

Use Form 6251 to calculate your AMT and file the form with your 2021 Form 1040.

Say goodbye to the tuition and fees deduction, which was worth up to $4,000 per year. It was repealed starting with the 2021 tax year.

On the bright side, the phase-out thresholds for the lifetime learning credit were increased. They're now the same as the phase-out amounts for the American Opportunity credit. So, beginning with 2021 tax returns, the lifetime learning credit is gradually reduced to zero for joint filers with a modified AGI from $160,000 to $180,000 ($118,000 to $138,000 for 2020) and single filers with a modified AGI between $80,000 to $90,000 ($59,000 and $69,000 for 2020). If you're claiming either the lifetime learning credit or the American Opportunity credit, you must first complete Form 8863 and then attach it to your 1040 form.

The phase-out ranges are also higher in 2021 for the exclusion of interest on Series EE and I savings bonds redeemed to help pay for tuition and fees for college, graduate school, or vocational school. For 2021 tax returns, the exclusion starts to phase out for joint filers with a modified AGI exceeding $124,800 and for other people with a modified AGI of $83,200 or more ($123,550 and $82,350, respectively, for 2020). The exclusion is totally phased-out for joint filers with a modified AGI of $154,800 or more and for other taxpayers with a modified AGI of at least $98,200 ($153,550 and $97,350, respectively, for 2020). You must compete Form 8815 to claim the exclusion and then report the exclusion amount on Line 3 of Schedule B.

The recovery rebate credit is back, but with one important change. As you may recall, this credit made its first appearance on the 2020 Form 1040 and was available for people who didn't receive a first or second stimulus check, or who didn't receive the full stimulus check amount they were entitled to.

For 2021 tax returns, the credit is for people who didn't receive a third stimulus check (or didn't receive the full amount). Those payments were for up to $1,400, plus an additional $1,400 for each dependent in your family. Similar to the monthly child tax credit payments the IRS sent last year, your third stimulus check was an advance payment of the recovery rebate credit. As a result, when you file your 2021 return, you must reduce the recovery rebate credit you're entitled to claim by the amount of your third stimulus check. (The IRS will send you a Letter 6475 showing the amount of your third stimulus check.) For most people, your third stimulus check payment will equal the 2021 recovery rebate credit allowed. If that's the case for you, the credit will be reduced to zero. But if your third stimulus check was less than the credit, your recovery rebate credit will equal the difference. And what if your third stimulus check was more than your 2021 recovery rebate credit? You get to keep the difference!

Use our Third Stimulus Check Calculator to see you how large your third stimulus check should have been.

Two tax breaks that encourage saving for retirement were tweaked for the 2021 tax year. In both cases, the changes are the result of annual adjustments for inflation.

The first retirement-related change for 2021 tax returns is to the deduction for contributions to a traditional IRA. If either you or your spouse was covered by an employer retirement plan, your IRA deduction may be reduced (potentially to zero), depending on your filing status and income. The income levels that trigger a reduction for 2021 returns have been adjusted. For married couples filing a joint return, the deduction is gradually phased out if you're modified AGI is between $105,000 and $125,000 (between $104,000 and $124,000 for 2020 returns). For single and head-of-household filers, the phase-out range is from $66,000 to $76,000 ($65,000 to $75,000 for 2020).

If only one spouse is covered by a retirement plan at work, the deduction is reduced if the couple's modified AGI exceeds $198,000, and it's totally eliminated if their modified AGI hits $208,000 ($196,000 and $206,000, respectively, for 2020). (NOTE: If you made any nondeductible contributions to a traditional IRA for 2021, report them on Form 8606.)

The second change is to the "Saver's Credit," which encourages lower- and middle-income people to save for retirement. The credit is allowed for either 10%, 20%, or 50% of the first $2,000 ($4,000 for joint filers) you contribute to retirement accounts, depending on your filing status and income. The lower your income, the higher the percentage you can use to calculate the credit. For 2021 tax returns, single filers, married people filing a separate return, and qualified widow(er)s can claim a 50% credit if their AGI is $19,750 or less ($19,500 for 2020). They can claim a 20% credit if their AGI is from $19,751 to $21,500 ($19,501 to $21,250 for 2020), and the 10% credit is available if their AGI is from $21,501 to $33,000 ($21,251 to $32,500).

For married couples filing a joint return, the 50% credit is available if their AGI doesn't exceed $39,500 ($39,000 for 2020), the 20% credit is available if their AGI is from $39,501 to $43,000 ($39,001 to $42,500 for 2020), and the 10% credit is available if their AGI is from $43,001 to $66,000 ($42,501 to $65,000 for 2020).

The 50% credit can be claimed by head-of-household filers with an AGI of $29,625 or less ($29,250 for 2020), while they can claim the 20% credit with an AGI from $29,626 to $32,250 ($29,251 to $31,875 for 2020) and the 10% credit with an AGI from $32,251 to $49,500 ($31,876 to $48,750 for 2020).

To claim the credit, complete Form 8880 and send it to the IRS with your 1040 form.

For 2021 tax returns, standard mileage rate for business driving is 56¢ a mile – that's less than the 57.5¢ per mile for 2020. The rate for medical travel and military moves also dropped for the 2021 tax year from 17¢ to 16¢ a mile.

The mileage rate for charitable driving doesn't change from year-to-year. So, it stayed put at 14¢ a mile for 2021 returns.

Self-employed taxpayers can claim some tax breaks that other people can't. And some of those tax breaks are tweaked for 2021 tax returns. For instance, the sick or family leave credits self-employed people could claim on their 2020 tax return if they missed work for Covid-related reasons was extended for 2021 – but not for the full year. For 2021 returns, the credits are only available for qualified absences through September 30, 2021. In addition, the family leave credit can only be claimed for 50 days missed from January 1 to March 31, 2021, but it can be claimed for up to 60 days missed from April 1 to September 30, 2021. Self-employed people should use Form 7202 to calculate the sick and family leave credits they're entitled to claim on their 2021 1040 form.

The income threshold for limits on the 20% deduction for qualified business income were also adjusted for the 2021 tax year. The taxable income threshold is $329,800 for married couples filing a joint return, $164,925 for married people filing a separate return, and $164,900 for all others ($326,600 for joint filers and $163,300 for all others for 2020 returns). Use Form 8995 or Form 8995-A to figure your qualified business income deduction.

Self-employed people who are wining and dining clients can take advantage of another perk for both the 2021 and 2022 tax years. The deduction for business meals at a restaurant is increased from 50% to 100%. This deduction is claimed on Line 24b of Schedule C.

If a self-employed person had a Paycheck Protection Program (PPP) loan forgiven in 2021, the canceled debt is not taxable income and doesn't have to be reported on Form 1040. However, if you have tax-exempt income resulting from the discharge of a PPP loan last year, you must attach a statement to your 2021 tax return that includes certain information related to your PPP loan (see the instructions to Form 1040 for details). You should also write "RP2021-48" at the top of the statement.

Unfortunately, there are also a couple of negative changes that may increase the 2021 tax bill for some self-employed taxpayers. First, none of the self-employment taxes owed for the 2021 tax year can be deferred as they could on 2020 returns. In fact, half of any 2020 tax deferred had to be paid by the end of 2021, while the rest is due by the end of 2022. Second, the cap on deductible business losses is back after being suspended for the 2018 to 2020 tax years. For 2021 tax returns, the inflation-adjusted limit is $262,000 ($524,000 for married couples filing a joint return). Form 461 is used to calculate a self-employed taxpayer's limitation on business losses.

The $10,200 exemption for unemployment compensation in effect for the 2020 tax year is no more. Under the American Rescue Plan Act, which authorized the exemption for families with a federal AGI less than $150,000, the tax break was for one year only.

As a result, any unemployment compensation you received last year will be fully taxed on your 2021 tax return. Report the benefits on Line 7 of Schedule 1.

If you're paying for long-term care insurance, you might be able to deduct a portion of your premiums – and the deduction maximums, which are based on age, are higher for the 2021 tax year. Taxpayers age 71 or older can deduct up to $5,640 per person on their 2021 tax return ($5,430 for 2020). If you're 61 to 70 years old, you can deduct as much as $4,520 of your premiums ($4,350 for 2020). Anyone 51 to 60 years old can write-off up to $1,690 ($1,630 for 2020). For people 41 to 50 years of age, the max is $850 ($810 for 2020). And, finally, the maximum deduction is $450 if you're 40 or younger ($430 for 2020).

Long-term care insurance premiums are only deductible as medical expenses for most people, which means they must itemize deductions on Schedule A to claim the tax break. However, self-employed people can deduct their premiums on Line 17 of Schedule 1 without having to itemize.

Before the 2021 tax year, canceled or forgiven student loan debt was considered taxable income. However, from 2021 to 2025, most canceled student loan debt that was incurred for a post-secondary education is tax-free. Therefore, you shouldn't report qualified student loan debt that was canceled last year on Line 8c of Schedule 1.

The IRS has also told lenders and student loan servicer providers not to file Form 1099-C or submit payee statements for qualified student loan debt that's discharged, canceled, or otherwise forgiven through 2025. So, if you do receive a 1099-C form reporting discharged student loan debt that you believe is not taxable, contact the lender or loan service provider that issued the form and ask them to send a corrected form.

Americans working abroad may be able to exclude all or a portion of their foreign-earned income from taxable income on their U.S. tax return. For 2021 returns, the maximum exclusion amount is $1,100 higher than it was for the 2020 tax year – it jumped from $107,600 to $108,700.

In addition to the foreign earned income exclusion, taxpayers living abroad may also be able to claim an exclusion or deduction for their foreign housing. For the 2021 tax year, the maximum foreign housing exclusion is generally $15,218 ($15,064 for 2020), although it can be higher in certain high-cost areas.

Use Form 2555 to figure both your foreign earned income exclusion and foreign housing exclusion/deduction.

The cost of living rises every year, which makes paying for basic expenses more difficult. Long-term care (LTC) premiums are increasing, too. It’s become a focal point in the last several months as rates have gone up — the increased premiums can harm an individual’s quality of life and continued access to quality care. It’s an issue that hits close to home for me and my family, as my mom has seen her premiums rise by 50% over the past two decades.

According to the U.S. Department of Health and Human Services, someone turning 65 today has nearly a 70% chance of needing long-term care services and support. Currently, a growing client base who bought LTC insurance in the past is now seeing high premium increases.

While someone in their 60s and early to mid-70s may be able to manage a premium increase, the rate hike is much more difficult for those in their late 70s. The situation may have you thinking you need to reduce coverage or even forgo insurance altogether.

However, there are less drastic ways to tackle the issue and maintain premiums while handling the increased costs.

Why Are LTC Premiums Increasing?

Premiums have risen steeply over the past several years due to many factors. According to research conducted by the American Association for Long-term Care Insurance, the causes of high premiums include lapse rates, rising costs, longer lifespans and low interest rates.

Lapse rates are a big factor. Insurance companies priced policies under the assumption that 4% of policyholders would allow their policies to lapse. Yet, as the policyholders aged, only 1% discontinued their insurance, resulting in more people claiming LTC than projected.

People are living longer, too. Not only are more people submitting claims, but insurance companies are paying out for longer periods of time. Companies must maintain large reserves of cash to make sure they can keep up with the rising cost of medical care while balancing sharp decreases in interest rates that lowered returns.

It’s no surprise insurance companies are feeling the pinch, and they’re passing the pain onto policyholders.

Five Ways to Handle LTC Premium Increases

As a policyholder faced with an increase in LTC premiums, you need to find ways to cushion the blow and maintain the policy while dealing with the higher costs. Here are five ways you can go about handling the higher costs.

1. Shorten your benefit period

Carriers typically offer different benefit periods that can range from two to five years. Shorter benefit periods mean the insurance company will have to pay out fewer claims, and that can lower your premiums.

Keep in mind that the benefit period isn’t a finite amount of time. You may be able to stretch it out longer than you think.

For example, suppose you buy a two-year policy at $100 per day — that’s 730 days of care. But your benefit period could last much longer than two years if you don’t use the full $100 per day benefit consecutively.

Essentially, the benefit period is the minimum amount of time your policy would cover you. If you have a five-year policy, you may want to consider shortening it to two or three years to lower your costs.

2. Consider a shared care policy

Shared care is a type of long-term care insurance coverage for married couples. It lets spouses take out a plan and add their partners as a “rider.” As a designated rider, you can access the funds of your spouse’s plan if you exhaust funds from your own policy.

A shared care policy can reduce costs by pooling benefits together. Then, when either of you need coverage, you can split the coverage between the two of you. It can also extend your coverage. For example, if you and your spouse each have a three-year plan, you have the potential to tap into six years of benefits.

3. Think about a longer elimination period

The longer you make the waiting period before you start receiving payments, the cheaper your premiums can be. It’s like a deductible on car or home insurance, except it’s measured in time and not dollar amount.

Most policies have elimination period options of 30, 60 or 90 days. The longer the period, the longer it takes for the insurance company to kick in and start paying benefits, and the lower your long-term care premiums can be. The downside is you may end up paying more out of pocket — you’re responsible for paying the cost of any services you receive during the elimination period.

4. Reduce your daily benefits if you must

When buying your policy, you were likely looking for the best protection available. You may want to consider reducing the daily benefit as a last resort now that premium costs are on the rise. Instead of the maximum daily benefit, you can opt to pay for some of the daily benefits yourself. Lowering your benefit amount can automatically lower your premiums.

5. Contact your provider to ask about options

Every carrier offers different policy terms, and you may have other options to make your coverage more affordable. Contact your provider to ask about ways to lower your premiums before you determine your policy is too much for your budget.

It also helps to talk with a financial professional. A financial planner can review your situation, discuss your coverage needs, recommend an affordable plan, and address ways to lower the cost of your premiums.

LTC Premiums Increases: The Bottom Line

The rising LTC rates may be a shock. But remember you’re not alone. If the LTC price increase is making the insurance unaffordable, reach out to your provider or a financial planner to discuss your options. Reducing the benefit period can help in some cases. However, you likely want to avoid reducing the daily benefit amount unless necessary — it can negatively impact your quality of life and long-term care coverage.

The most important thing to keep in mind is that you have options. It may be possible to lower your monthly premiums and maintain your coverage, so you have the help when you need it most.

Every situation is unique. In my own family’s case, in 2000, I recommended that my parents purchase long term care insurance. They selected a $125 daily benefit for four years. At the time of purchase, my mom was 54 and my dad was 68. I advised my mom to select 5% compound inflation protection and my dad 5% simple inflation. The annual premium for Mom’s policy started out at $1,224 (I looked up the exact amount) and my dad’s was closer to $2,242 ( I looked up the exact amount) due to their age differences. In 2004, my dad was diagnosed with Parkinson’s disease. His condition precipitously declined in 2012. He did require assistance with the Activities of Daily Living and started using his benefits. Dad passed away in 2015.

Since my mom purchased her policy, she has experienced three price increases. Her annual premium is now $1,865 (I just helped her pay the bill) but her daily benefit has grown to $343. Her own mom lived to 94. At some point, we may freeze benefits, but for now these premium increases are manageable.

Many couples may be able to withstand one long term care event, but I think about the impact of the factor we cannot control: inflation, taxes, and market performance. The bottom line is that I would not want my parents to lose financial dignity in retirement.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

When the topic of financial planning is raised, people’s thoughts tend to immediately focus on saving, investing and ultimately generating income in retirement. While these are certainly critical components of building a solid financial foundation, so too are strategies for protecting your income and assets from the unexpected.

The future is always an uncertainty. Therefore, you need to prepare as much as possible for the unexpected. Having the appropriate insurance protections in place — whether for your personal property, your family’s financial well-being if you should die or become disabled, or protecting your savings from being eroded by the costs of a major health care crisis — brings with it the peace of mind that your goals can still be achieved whatever the future may hold.

As you create your own plan, make sure you don’t overlook the following key income and asset protection strategies:

Life insurance

More than 30 million Americans who own life insurance policies don’t have enough coverage, according to a recent LIMRA study. While the average shortfall in coverage is around $225,000, it’s even greater for high income earners.

Why such a large coverage gap? Often, it’s because people tend to treat life insurance as a “check the box” task. They’ll buy a $500,000 policy when they’re younger (figuring it’s more than enough coverage to replace lost income), and then put it aside and forget about it.

But your life and wealth are constantly evolving. A policy that would replace a decade’s worth of income when you were making $50,000/year, suddenly only covers two years when your salary has climbed to $250,000. In addition, you may now have a couple of children — meaning it’s not just a matter of replacing income but funding college educations.

There are no hard and fast rules when it comes to determining how much coverage is enough. The amount will vary greatly depending on your level of wealth, your liabilities and your personal circumstances. Often, the best place to start is by asking yourself the following four questions:

• How much would your spouse need to pay off any mortgages if something happens to you?
• How much beyond what you’ve already saved will be needed to fund your children’s future educational costs?
• Are you carrying any other debt or liabilities that will need to be paid off if you die?
• And how much of an additional safety net would your family need to ensure they would be able to maintain their lifestyle?

Keep in mind that the younger and healthier you are when you purchase a policy — whether term, universal or whole life — the easier the process will be and the more affordable the annual premiums.

Even as you get older and your income replacement needs diminish, life insurance can still play an important role in your financial plan. It can serve as an additional source of tax deferral if you’re already maxing out your 401(k) and IRA accounts but want to save more for retirement. It can enhance the value of wealth you place in trust to transfer to the next generation. And it can serve as a way to leverage your RMDs (if you don’t need them for income) to provide an additional legacy for your heirs.

Disability insurance

You probably have some sort of group disability insurance through your employer to help replace your income if you ever get sick or injured and are unable to work. But did you know that the average employer policy only covers about 60% of your salary, with a cap on monthly benefits? And if you work in a profession where commissions and bonuses make up a major portion of your compensation, most employer disability policies don’t cover this income.

Take time to figure out just how much any existing disability coverage would provide you with each month. If it isn’t enough to cover your monthly expenses, you may want to consider a supplemental individual disability policy to cover that gap.

Not only will an individual policy travel with you if you switch employers, any monthly benefits you receive from the insurance won’t be taxed (unlike employer-paid policy benefits, which are usually taxable). Make sure, however, to carefully review each policy’s “definition of disability” when shopping for coverage, as they can vary greatly. Some policies might pay if you can’t perform your specific job, while others might only pay if you are completely unable to work. And one policy might only pay benefits for a few years, while another might provide coverage until you reach age 65.

Long-term care insurance

According to the U.S. Department of Health and Human Services, 70% of adults who are turning 65 today will require some type of long-term care (e.g., home health care, a nursing home stay, or time in an assisted-living facility) during their lives. These are costs that are NOT covered by Medicare.

And the potential expenses associated with long-term care are so high (on average $55,000/year for a full-time home health aide; and $93,000/year for a semi-private room in a nursing home), that they can quickly drain a lifetime’s worth of savings — assets that might otherwise provide a legacy for your heirs.

Yet long-term care is one of the most challenging insurance needs to plan for. Firstly, none of us want to spend a lot of time contemplating our own physical or cognitive decline. In addition, traditional long-term care insurance carries a very real risk that you might pay years of premiums without ever needing any of the benefits (in which case your premiums are lost). But there are other alternatives such as hybrid life and long-term care insurance policies — where you can “tap into” the policy’s death benefit to pay long-term care expenses, with the remainder being passed on to your heirs when you die — as well as long-term care insurance riders that can be added to certain types of annuities.

The important thing is to not wait until you start experiencing a physical or cognitive decline before seeking out coverage. The underwriting/approval process can be rigorous, and you’ll likely be declined for coverage if a serious ailment or health issue has already arisen.

Typically, in order to be considered a “coverable” long-term care event, you must be unable to perform at least two activities of daily living (ADLs), or suffer a cognitive impairment. There are six common ADLs as defined by most medical professionals:

• Eating — maintaining the ability to feed yourself.
• Dressing — retaining the ability to dress and undress.
• Transferring — having the ability to sit, stand and move about (mobility).
• Bathing — having the ability to bathe/shower and groom yourself.
• Toileting — retaining the ability to safely use (on and off) and maintain proper hygiene.
• Continence — being able to control bodily functions.

Contrary to popular belief, however, you don’t have to be admitted into a nursing home to claim benefits. A typical long-term care policy can be used in a variety of situations, including in-home care, rehabilitation services, assisted living or nursing home care. So, “aging in place” in the comfort of your own home is still a viable option.

Don’t procrastinate

From managing cash flow to funding your children’s education, saving for retirement, and protecting future income and assets, a well-crafted financial plan gives structure and direction to your life. Having the right protections in place serves as your plan’s “safety net” — ready to catch you in the event of a mishap.

Planning, however, isn’t a one-and-done event. It’s a continuous process that needs to evolve as your life and circumstances evolve. Protection needs and coverage amounts will increase and decrease as you progress through various life stages. But the sooner you commit to planning, the easier it will be and the more options you’ll have available to you.

Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax adviser.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

In early June, a 102-year-old South Carolina woman made headlines with her secret to a long life: minding her own business. While most of us probably won’t live that long (or resist the temptation to be nosy), modern medicine has increased the likelihood that we’ll live well into our nineties. But living longer also raises a daunting question: Will you need long-term care, and if so, how will you pay for it?

More than two-thirds of 65-year-olds will need some type of long-term care in their lifetime, according to the Administration for Community Living, a division of the U.S. Department of Health and Human Services. The cost of long-term care can deplete even a well-funded retirement savings plan: According to the 2020 Genworth Cost of Care Survey, the median cost of a private room in a skilled nursing home exceeds $8,800 a month. And the cost varies depending on where you live. A typical private room in New York costs about $12,930 (according to the Genworth survey), compared with about $7,600 in Tennessee. (To get an idea of how much you would need in each state, check the Genworth Cost of Care Survey.)

Many Americans mistakenly believe that Med­icare will cover their long-term care. Medicare Part A may cover care that is deemed medically necessary at a certified skilled nursing facility for up to 90 days, but if you need custodial care for a condition such as dementia, Medicare won’t cover the costs.

Long-term-care insurance provides benefits in the event you need help with at least two “activities of daily living”—bathing, getting dressed or eating, for example—for more than 90 days. (Some policies will kick in at 60 days or less, but you’ll pay higher premiums.) Most policies will pay for care in your home or at a long-term-care facility, and some will pay for your transportation to a doctor’s appointment.

A long-term-care policy could give you peace of mind, but the cost is steep. Premiums are expensive and are continuing to increase, due in large part to the rising cost of care and historically low interest rates. These premiums, as well as returns from fixed-income investments, cover the cost of long-term-care insurance. But many policies were designed 30 years ago, when interest rates on U.S. Treasuries were much higher than they are today, says Jesse Slome, executive director of the American Association for Long-Term Care Insurance (AALTCI). For a single percentage point decline in interest rates, an insurer needs to raise premiums 10% to 15%, he says. If rates rise significantly, premiums could decrease, but that’s unlikely anytime soon.

Costs aside, you have to deal with the uncertainty of your long-term needs. You or your spouse may not require care at all or only for a short period of time.

Determining whether insurance is right for you depends on whether you have enough money to self-insure and what’s best for your family. If you can’t afford to pay for long-term care, family caregivers could be forced to cut back on work hours or quit their job to take care of you, jeopardizing their own retirement security. In a recent survey by Fidelity Investments, 28% of respondents left their job due to caregiving responsibilities. Of those who eventually went back to work, more than one-third said their earnings declined.

Can you self-insure?

If you have suf­ficient assets, you may choose to self-insure, which means any long-term-care needs you have will be paid out of your own coffers. “If someone has over $1 million in liquid assets, then they could probably self-insure, provided they were willing to spend it all for their own care,” Slome says. If you’re married, he ups the number to $2.5 million.

When you self-insure, you’re basically betting that you won’t require a prolonged stay in a nursing home—and it’s not a bad bet. According to the Administration for Community Living, most people who go into a nursing home stay for less than 12 months. Instead, you are more likely to rely on in-home care. It costs about $4,600 a month for one or more caregivers to provide 44 hours a week of in-home care, according to the Genworth Study.

Mari Adam, a certified financial planner with Mercer Advisors, in Boca Raton, Fla., suggests sitting down with a financial planner to figure out how much you’ll have in savings to cover long-term care. You’ll typically include funds in your traditional and Roth IRAs, 401(k) plans, taxable accounts, Social Security, and any pension income.

Your home is also part of the equation when calculating whether you can self-insure. If you’ve built a substantial amount of home equity, you can downsize to a smaller place. If you eventually need to move to assisted living or a nursing home, you may be able to use proceeds from the sale of your home to cover the costs. If you don’t want to sell your house, a home-equity line of credit or a reverse mortgage is also an option. (Here's more on how to tap your home equity.)

If you’re enrolled in a high-deductible health insurance plan, you can also harness the tax-saving power of a health savings account (HSA) to pay for some of your long-term-care costs. Contributions are pretax (or deductible if you set up an HSA on your own), earnings are tax-free, and distributions aren’t taxed if you use them to pay for qualified medical expenses. Plus, you can keep your account after you stop working and take tax-free withdrawals for medical expenses in retirement, including any long-term-care costs. To qualify for an HSA, your 2021 health plan must have at least a $1,400 deductible for self-only coverage or $2,800 for family coverage. You can contribute up to $3,600 if you have self-only coverage or up to $7,200 if you have family coverage. If you’re 55 or older at the end of the year, you can contribute an extra $1,000 in catch-up contributions. Once you enroll in Medicare, you’re no longer allowed to contribute to an HSA, but the money continues to grow until you’re ready to use it.

You can also use money from your HSA tax-free to pay long-term-care insurance premiums, with the maximum annual tax-free amount based on your age. If you’re age 40 or younger, you can withdraw up to $450 tax-free from an HSA in 2021 to pay the premiums; if you’re 41 to 50, you can take out $850; if you’re 51 to 60, $1,690; if you’re 61 to 70, $4,520; and if you’re 71 or older, $5,640. If you and your spouse both have long-term-care policies, you can each use money tax-free from your HSA to pay premiums, up to the maximum for each of you based on your ages by the end of the year. These limits increase slightly each year to adjust for inflation.

The case for insurance

Once you have run the numbers, you may conclude that you can handle the cost of long-term care. However, if you’re married, you may still want to consider buying a long-term-care insurance policy, Adam says. The risks are higher that at least one spouse will require long-term care, and those costs could exhaust your combined savings, leaving the other spouse with no resources.

A 55-year-old couple can expect to pay $2,100 a year for a typical policy with an initial benefit pool (the pot of money the insurance company will pay out) for each spouse of $165,000 to cover adult day care, home aide services, assisted living and nursing home costs. If that seems like a high price to pay for something you may never use, there are ways to trim the cost.

Married couples can reduce what they pay in the long run by buying a shared benefit plan, which allows spouses to pool their benefits. If one spouse exhausts his or her benefits, then he or she can tap the other spouse’s share. To get the best value, both spouses need to apply for the same amount of benefits—for example, three years at $200 a day—and then add a shared benefits rider. Plus, depending on the carrier, both spouses can get a discount of between 15% and 30% on their premiums if both buy a policy with the same company, according to Bill Dyess, a long-term-care expert and insurance broker in Boca Raton. However, even if just one spouse buys a policy, the insurance company is likely to provide a 10% to 15% premium discount because married people are less likely to go into a nursing home than single people.

You can also save money by skipping the inflation rider. While these riders will help you keep up with the rising costs of long-term care, they can double your premiums, Dyess says. For example, if a 55-year-old man bought a traditional policy with a benefit pool of $165,000 and he wanted to add a 2% inflation rider, he would pay $1,750 in annual premiums, compared with $950 for a policy without a rider, according to data from the AALTCI. A 55-year-old woman would pay $2,815 instead of $1,500.

Buying a policy when you are in your forties or early fifties will also decrease the cost of premiums (although you’ll be paying for them over a longer period of time). Insurance companies assume you’re at a higher risk for health problems as you age.

Slome says the sweet spot for buying a policy is between the ages of 55 and 65, before you sign up for Medicare. “The first time that people actually take advantage of all those wonderful free health screens is usually after they sign up for Medicare,” he says. “And when they do, the doctors tend to find something.” If you have a health condition, you’ll pay higher premiums, or the insurer may decline to cover you at all.

A traditional policy with $165,000 in initial benefits (and no inflation rider) that would cost a 55-year-old man $950 a year jumps to almost $1,200 a year, on average, if he waits until his 60th birthday to buy coverage. A 55-year-old woman’s premiums would jump from $1,500 to about $2,000.

If you decide to buy a policy at a relatively young age—in your fifties, for example—you may want to add a restoration of benefits rider. If you make a claim and later recover from the illness that caused you to require long-term care, the rider enables the benefit amount you used to be restored to your policy benefit pool. For example, suppose at age 60 you make a claim for $50,000 to pay for your care. If you recover and can show your insurance company you’ve been healthy for a set amount of time (usually determined by the insurance company when the policy is written), the restoration rider will add back the $50,000 you initially used. This type of benefit is typically only good for a one-time use. A policy with this rider, which not every insurer offers, costs about 4% to 6% more than one without it.

If the numbers start to feel overwhelming, keep in mind that you probably don’t need a policy that will cover 100% of your long-term-care costs, Adam says. Instead, you should consider whether a policy can help you pay for some of your long-term care without depleting all of your retirement assets. And if a policy that offers the benefits you want is unaffordable, a long-term-care insurance specialist can help you look for ways to lower the cost.

Consider a hybrid policy

Another alternative to a traditional long-term-care policy is a hybrid life insurance policy that includes long-term-care benefits. If you tap the policy to pay for long-term care, your death benefit will be reduced, although some hybrid policies will pay a small residual benefit even if the entire death benefit is exhausted by long-term-care costs.

Say you have a hybrid policy with a $120,000 death benefit that provides $180,000 of potential long-term-care benefits. If you spend $80,000 on long-term care, your heirs will still receive $40,000 after you die. If you spend the entire $180,000 on care and your policy pays a small residual death benefit, your beneficiaries may receive $10,000.

Such a policy may appeal to you if you’re determined to leave something to your heirs, but you’ll pay more for this kind of insurance. A 55-year-old man can expect to pay roughly $4,600 a year (compared with $950 for a traditional long-term-care insurance policy) for a life insurance policy that provides $180,000 in long-term-care benefits with a $120,000 death benefit.

To find a long-term-care specialist, go to aaltci.org and click on “LTC Resources.” Type in your zip code to find a professional in your area; make sure he or she has a “certified in long-term care” designation.

Is government help on the way?

In a recent poll conducted by the Associated Press, 60% of respondents favored a federal, Medicare-like long-term-care insurance program. Some 70% said Medicare should cover long-term care. While a federal long-term-care program is unlikely anytime soon, President Joe Biden has proposed spending $400 billion on home and community-based services for long-term care (although the outlook for the proposal is unclear).

In the meantime, some states may look into starting their own programs. In 2019, the Washington State legislature passed a bill to create a state long-term-care program funded by a new payroll tax. Starting on January 1, 2022, the state will add an additional 58 cents to payroll taxes for every $100 of eligible wages reported on Form W-2. Employees can opt out by November 1, 2021, if they purchase a qualifying long-term-care insurance policy.

If you’re thinking that Medicaid will be your golden ticket for long-term care, think again. To qualify for Medicaid, you must spend down nearly all of your assets first. Medicaid also has a “look back” period that involves examining your financial transactions from the past five years to determine whether you gave away money to qualify for Medicaid, which could render you ineligible. And even if you qualify for Medicaid, you’ll have to go to a facility that accepts Medicaid, and as the population ages, those will be increasingly hard to find.

Women face unique challenges as they age. According to the Population Reference Bureau, a Washington based think tank, women live about seven years more than men. Living longer means planning for a longer retirement. That sounds good, but a longer retirement increases the odds of needing long-term care. A 2004 AARP study found more than 70% of nursing home residents were women.

Living longer also increases the odds of going it alone, as living longer may mean outliving a spouse. According to the Joint Center for Housing Studies of Harvard University, “In 2018 women comprised 74% of solo households age 80 and over.”

For these reasons, women should think about how to plan for long-term care.

Ability to pay

Long-term care is costly. The average private room at a long-term care facility is over $13K a month in my home state of Connecticut, according to Genworth’s Cost of Care Survey. Florida is a little cheaper. In the Naples area a private room is about $11K a month.

Of course, there are ways to keep the cost down, like paying for care at home. Home health care is about $5K a month in Naples, Fla. (Genworth 2020 figures). Multiply these numbers by 1.44 years – the average duration of care for women, according to the study – and these numbers can get big fast.

Medicare and Medicaid

Government programs such as Medicare and Medicaid are tricky. Medicare may cover some long-term care expenses, but only for the first 100 days. Medicare does not pay for custodial care – at home long-term care. Medicaid pays for long-term care, but you must qualify financially. Also, most long-term care facilities in my experience only have a set number of Medicaid beds available.

Spending down an estate to qualify for Medicaid is one way to pay for long-term care, but it’s not ideal in my opinion.

The risk the facility you want is not available for Medicaid recipients looms large. Also, to qualify for Medicaid may leave you financially destitute, not ideal after a lifetime of working. Finally, the rules for Medicaid can change. For some, Medicaid is the only option. For others, who have time on their side and the resources available, now is the time to start planning.

Run the Retirement Projections

The first step when mapping out a road trip on a GPS is to enter in your starting and destination point. It’s the same with retirement and long-term care planning. When I take on a new client, we always review the retirement projections. We start with an ideal scenario. This may mean both spouses live long happy lives. Or it could mean no long-term care is needed. Then I play a series of “what-if” scenarios. What-if the husband passes early? How does that impact their retirement? What if a female client lives to 100? Will she have enough to live on? What-if a single woman needs long-term care for dementia? Alzheimer’s and dementia can last for years, wreaking havoc on a retiree’s nest egg. I always stress test the ideal scenario.

Below is one example. In the base or ideal scenario, the client had a modest retirement success rate of 78% out of 100%. The higher the success rate, the better the chance the client does not run out of money. However, the odds drastically decrease when we plug in a long-term care expense for two years at her age 86.

Planning for long-term care

The outputs drive the recommendations. If a female client has a high retirement success rate – even with the long-term care expenses added into the analysis – then she may want to self-insure her future long-term care expenses. Self-insuring can mean setting up a designated long-term care investment account solely to be used for future long-term care expenses. This account can be a brokerage account or IRA or health savings account if available. Long-term care costs have increased by about 3%-5% over the years, a diversified portfolio is a smart way to keep pace with inflation.

If a female client has a modest degree of retirement success, like in the example above, the planning may be slightly different. The woman in this example may want to decrease current expenses to save more for the future. She may also want to review long-term care insurance. I may recommend in this scenario some combination of both – self-insuring and purchasing a small long-term care policy. The long-term care insurance is a backstop – preventing her from completely depleting her nest egg in the event of a long, protracted illness.

Some states also offer “partnership plans.” A partnership long-term care plan is a private insurance policy with a special perk. The plan allows an individual to keep some of the nest egg and still qualify for Medicaid. For example, if a partnership long-term care plan pays $300K in long-term care benefits, then $300K of personal investments or cash may be excluded from the Medicaid qualifying calculation. This is helpful if you do end up needing Medicaid to pay for long-term care.

Partnership plans have specific policy provisions like inflation protection. It’s best to seek help from a qualified agent familiar with partnership plans.

Other planning implications

Women can also consider delaying taking Social Security till age 70. If women live longer, the extra benefits accrued by waiting can help with long-term care. Women with a higher-earning husband may want to encourage the higher-earning spouse to delay until age 70 if appropriate. When the higher-earning spouse passes away, the widow can step into the higher benefit.

The average break-even age is generally around 77-83 for Social Security. If an individual can live longer than 83, the more dollars and sense it makes to delay collecting till age 70.

Finally, getting the right estate documents in order is a must. Women – and men – should have a power of attorney (POA). A POA gives a trusted individual the ability to write checks and send money to pay for long-term care. Women and men should also have a “trusted contact” on all their investment accounts. A trusted contact cannot transact money but is notified in the event of suspected elder abuse or fraud.

The moral of the story is to start planning! Women especially need to think about the impact a longer life can have on their retirement. Start with running the retirement projections. Play the “what-if” scenarios. The more a prospective client procrastinates, the fewer options are generally available. A change in health could prevent someone from qualifying for long-term care insurance. Delaying saving for a future long-term care expense can mean less growth on the investment.

When it comes to planning, patience is often not a virtue. Delaying or kicking the can down the road may prove costly.

For more information or to discuss your retirement and long-term care, please send me an email at maloi@sfr1.com.

Further reading: 3 Ways to Pay for Long-term Care

Investment advisory and financial planning services are offered through Summit Financial LLC, an SEC Registered Investment Adviser, 4 Campus Drive, Parsippany, NJ 07054. Tel. 973-285-3600 Fax. 973-285-3666. This material is for your information and guidance and is not intended as legal or tax advice. Clients should make all decisions regarding the tax and legal implications of their investments and plans after consulting with their independent tax or legal advisers. Individual investor portfolios must be constructed based on the individual’s financial resources, investment goals, risk tolerance, investment time horizon, tax situation and other relevant factors. Past performance is not a guarantee of future results. The views and opinions expressed in this article are solely those of the author and should not be attributed to Summit Financial LLC. Links to third-party websites are provided for your convenience and informational purposes only. Summit is not responsible for the information contained on third-party websites. The Summit financial planning design team admitted attorneys and/or CPAs, who act exclusively in a non-representative capacity with respect to Summit’s clients. Neither they nor Summit provide tax or legal advice to clients. Any tax statements contained herein were not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state or local taxes.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The decision on whether to buy long-term care insurance vs. self-insuring is a question many clients ask. If you can afford to self-insure based on your planning, then the choice boils down to whether you would like to retain the risk or share the risk with an insurance company. The goal would be to take the worst-case scenario off the table, if possible. 

Insurance companies offer many different long-term care products with various bells and whistles (such as LTC with life insurance or annuities), so it is important to determine what you would like to cover and what you can afford to pay on premiums. Since you have no idea of what the future holds for you, and there are many variables and unknowns — such as if and when you will need care or how much the insurance company may raise the premiums in the long term — this decision comes down to what makes you sleep well at night.

Make Sure You Qualify for Long-Term Care

You will also need to make sure you qualify for long-term care, as some pre-existing conditions may prevent you from being insurable. (For example, you might be denied if you already need help bathing or dressing or you have Alzheimer’s or certain cancers.) You can also potentially get a discounted premium if you and your spouse choose to purchase policies together. Long-term care costs and increases in premiums can also vary by state.

Some policies allow you to use the benefit in whatever way you would like — so, if it’s a three-year benefit option and a starting monthly benefit of $6,000, this means you have a total starting coverage of $6,000 times 36 months, or $216,000. If you start using the benefits this year, as an example, and you used the maximum benefit every month, you would run out of money in just over three years.  However, if you start using 50% of the monthly benefit instead, then your coverage can last twice as long, or six years. 

For the majority of people, buying a long-term care policy is all about care at home, according to a study by Boston College. The study puts the lifetime risk of needing nursing home care at 44% and 58% for 65 or older men and women, respectively. Also, the study concluded that nursing home stays are shorter than previously believed: 10 months for the typical single man and 16 months for a woman.

Considerations for Long-Term Care Insurance

If you decide you want to go ahead with a policy, there are several considerations, such as:

How many years should you insure for? What are the advantages and disadvantages to insuring for longer and shorter periods? 

According to the Society of Actuaries’ studies on long-term care insurance claims, the average time for claims that last longer than a year ranged from 3½ to four years in 2014. Usually, two to four years is a good ballpark; three years is about average. The longer the benefit period the policy offers and the higher the policy benefit amount, the higher the cost to the policy buyer. So, it is a trade-off between accumulating and using the benefits and not using them at all. Essentially, the longer the benefit period that the LTC policy offers, the higher the risk the client might end up paying thousands of dollars in premiums and getting nothing in return.

Can the policy premiums rise and, if so, by how much? 

Many insurance companies increase premiums, and you have no idea if or when this may happen. You might be paying $3,000 annually for a policy for 15 years and the insurance company decides to raise your premium to $5,000. If you decide this is too costly after 15 years and cancel the policy, you have already paid $45,000 to the insurance company and have not used the benefit. However, like other insurance such as homeowners, you may be paying for peace of mind but never have to claim on it. 

Clients who cannot afford to self-insure currently because they do not have enough assets accumulated may be able to buy a LTC policy during their earlier years. As time progresses, there may be a point where their assets can support a long-term care event — and at this point, they can terminate their policy or modify it for less coverage. Keep in mind when a single person goes into LTC their expenses may move laterally (if you go into care you will probably sell your house and car and no longer travel), but with a couple, when one goes into care and the other doesn’t, the other spouse still has their usual living expenses, so you are faced with increased costs.

Is this a cash plan (indemnity) or a reimbursement plan? 

A cash plan has more flexibility, because you are paid a cash benefit equaling the entire daily benefit, vs. being reimbursed for actual expenses. A reimbursement policy will only pay the full daily benefit when the actual cost of care is greater than or equal to the daily benefit. 

Policies with a cash benefit are more expensive. However, if you have a cash plan, you have the option of paying a relative or friend to care for you.  

If you do go into care and come out, does the policy reset, or do the benefits paid reduce the benefit available for the next occurrence?

Some policies have a restoration of benefits rider, which increases the total amount of care your policy will cover. If you go into care and recover, the benefit will reset to the maximum amount as if you never used it. So, if your lifetime benefit was $300,000 and you went into care and used $150,000, once you come off the claim for a certain period of time (usually 180 days) the benefit resets to the original $300,000.

Are there any policies with compound interest available, and if so, what do they cost? 

Compound interest policies have better inflation protection but may have higher premiums. Some policies have a 5% simple interest, vs. others with a 3% compound interest. Depending on the policy and the rate, simple interest may be a better option over the long term as the breakeven point may not occur until later. Inflation is compounded, but if the LTC policy uses simple interest, at a certain point inflation overcomes the simple interest and the policy pays for less than the actual costs.

Does the policy have a waiting period? 

The shorter the period, the more expensive the rider. You will be responsible for any costs during the waiting period.

LTC usually turns into a less-than-ideal investment at some point. The decision to buy is very individualized, and if you happen to use it early, it can be a good investment, because you have paid less premiums upfront and are using the benefits. The longer you take to use a policy, the lower the return on the policy. If you end up using the policy in the first five to 10 years, this can be very advantageous. However, the longer you take to use the benefits, the more sense it may make to just put money aside yourself if you can afford to self-insure. Of course, there is no way of knowing if and when an event will happen. 

Note: We are not licensed insurance agents and cannot give insurance advice but can help you through the process of deciding what is best for you and provide a broad overview of the advantages and disadvantages. Please discuss this with your agent before purchasing or making any changes to your existing policies.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The bill for long-term care adds up fast. The annual median cost for a private room in a nursing home was $105,850 in 2020, according to Genworth. The government could pick up these costs if you qualify for Medicaid, but that’s easier said than done. “Medicaid is a welfare program,” says Neel Shah, estate-planning attorney and a certified financial planner at Shah & Associates in Monroe Township, N.J. “There are strict income and wealth limits to qualify.”

Medicaid should not be confused with Medicare, the national health insurance program for people age 65 and over that largely doesn’t cover long-term care.

If you can pay for your own care, you’ll have more options as not all facilities accept Medicaid. Still, even couples with ample savings risk impoverishing the other spouse to pay for a long stay in a nursing home. If that’s what you fear, you may be surprised to learn that you can preserve some assets for a spouse and qualify for Medicaid using tools designed for that purpose.

Although qualifications vary by state, your income generally must be less than $2,382 per month. You can allocate as much as $3,259.50 of your monthly income to a spouse, whose income isn’t considered, and still meet the Medicaid limit. Your assets must be $2,000 or less, with a spouse allowed to keep up to $130,380. Cash, bank accounts, real estate other than a primary residence, and investments, including those in an IRA or 401(k), all count as assets. But you may keep a personal residence, nonluxury personal belongings like clothes and home appliances, one vehicle, engagement and wedding rings, and a prepaid burial plot.

Redistributing your assets can help you meet Medicaid’s standards. “Rather than keeping $100,000 in the bank, use that money to pay off your mortgage or pay for home renovations,” says Shah. Alternatively, you could prepay a burial plot, replace a vehicle or upgrade household appliances. Your spouse will keep these purchases if you need long-term care, and with fewer assets to spend down, you’ll qualify for Medicaid sooner.

What your spouse is left with, however, is unlikely to be enough to live off of. You could boost a spouse’s income with a Medicaid-compliant annuity. These contracts turn your savings into a stream of future retirement income for you and a spouse and don’t count as an asset. You can buy the annuity at any time, but to be Medicaid compliant, the annuity payments must start immediately with the state named as the beneficiary after you and your spouse pass away.

You could also set up a Miller Trust for yourself, suggests Steve Parrish, co-director of the Center for Retirement Income at the American College of Financial Services in King of Prussia, Penn. This irrevocable trust is used exclusively to satisfy Medicaid’s income threshold. If your income from Social Security, pensions and other sources is above Medicaid’s limit but not enough to pay for nursing home care, the excess income can go into a Miller Trust. That lets you qualify for Medicaid while keeping some extra money in the trust for your own care. The funds can be used to take you out to dinner, get you nicer clothes, or pay for dental work, which Medicare doesn’t cover, Parrish says.

These strategies protect assets or income for couples. Leaving something to other heirs is harder. After you and your spouse pass away, state governments are required to recover Medicaid costs from your estate whenever possible, through a lien on your home, reimbursement from a Miller Trust or seizing assets during probate before they’re distributed to heirs.

A potential workaround comes with risk. Any assets given away within five years of a Medicaid application date still count toward eligibility, but property transferred to heirs earlier doesn’t. “You could set up an irrevocable trust on behalf of your children, and transfer property that way,” says Shah. “It’s like putting the property away in a vault and giving them the key.”

Because you lose control of the trust’s assets, your heirs should be willing to help you out financially if you need it. That’s too much uncertainty for Parrish. If someone has that much money, he says, maybe they should just use it to pay for better care.