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Planning for long-term care

One aspect of retirement health care gets even more attention than the rest: long-term care. How is it different from regular health care, and how can you prepare?


A separate piece of your retirement health care plan

Aside from ongoing "regular" health care, you should plan for the possibility that you'll need long-term care at some point.

Let's start with the positive—almost half of retirees don't need to pay for long-term care. But for those who do, it can get pricy, because Medicare doesn't cover it.

How much would you spend?

To start answering that question, think about:

  • Whether there's anyone in your life who would help care for you: usually, a spouse or a child. (Women are much more likely to need long-term care for more than 5 years, mainly because they're more likely to outlive their spouses.)
  • What type of care you'd want. There's a big difference in cost between a shared room in a basic nursing home vs. a private room in an upscale facility vs. in-home care.
  • What expenses you could cut to offset long-term care expenses. For example, people who need long-term care probably aren't spending much on travel and entertainment. If those costs are a big part of your budget, it might mean you have less extra to cover.
  • Where you'll be living. These costs vary widely based on location, so if you're planning to relocate, take that into consideration. In general, care is most expensive in Alaska and Hawaii, followed by the West Coast and the Northeast.



How much do people pay for long-term care?

Bar chart showing that almost half of people don't pay for any long-term care, but many people pay more than $250k.

For people turning age 65 between 2015 and 2019. Source: Assistant Secretary for Planning and Evaluation (ASPE) Issue Brief, Long-Term Services and Supports for Older Americans: Risks and Financing, ASPE Research Brief, revised February 2016, Table 5.

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Where would the money come from?

Since it's impossible to know whether you'll even have these types of expenses, you may not want or be able to save enough for worst-case scenarios.

That's understandable, but you should have a plan for how you'd deal with them if necessary.

Here are some common options:

Your home. If you have a permanent need for long-term care, you may not need a separate dwelling anymore. If your home is paid off, you can plan to sell it and use the equity if needed. (This could also free you from real estate taxes, utilities, and other housing-related costs.)

An income annuity. These annuities won't pay for long-term care specifically, but they'll guarantee you don't run out of money, even if you spend all your remaining savings.

Long-term care insurance. If you buy a long-term care policy, it will pay for some of these costs. Keep in mind there are often waiting periods for the insurance to kick in as well as maximum payouts. And once you're older than your mid-sixties (or if you're not in good health), premiums for a new policy are usually too expensive to be worth it.

Medicaid. The government health insurance program that covers low-income Americans will pay for long-term care, but generally only after you've exhausted all your assets.



How long-term care is paid for in the U.S.

Graphic showing that most long-term care costs are paid out of pocket.

For people turning age 65 between 2015 and 2019. Sources: Vanguard, based on data from the Assistant Secretary for Planning and Evaluation (ASPE) Issue Brief, Long-Term Services and Supports for Older Americans: Risks and Financing, ASPE Research Brief, revised February 2016, Table 3B and Table 5. Percentages are rounded.

Read chart description

Get your personalized health care estimate

As part of our advice service, you'll receive a retirement plan that includes a personalized health care estimate for your retirement years, taking into account your health status, coverage choices, retirement location, income, and more. It covers both your ongoing costs and potential costs for long-term care.

If you're already a Vanguard Personal Advisor client, set up an appointment with an advisor to get your estimate.

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REFERENCE CONTENT

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How much do people pay for long-term care?

48% of people pay no long-term care costs. 26% pay something, but less than $100K. Another 11% pay between $100K and $250K. And 15% pay more than $250K.

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How long-term care is paid for in the U.S.

53% of long-term care costs are paid out of pocket. Another 34% are paid by Medicaid. 10% are covered by Medicare, 3% by private insurance, and 1% by other public sources.