Pensions, annuities and insurance
Planning for long-term care
What long-term care is, what Medicare and Medicaid pay for, the ways to pay for care, and how to test a care event against your plan.
Education, not advice. This guide explains general rules with invented examples. It isn't financial, tax or legal advice for your situation. Tax figures are for 2026 and come from published IRS, SSA and CMS sources. Rules change, so check current figures before you act.
Long-term care is help with everyday living when you can't manage on your own. It covers bathing, dressing, eating, moving around and supervision for people with dementia. It can happen at home, in assisted living or in a nursing home.
It's one of the largest costs a retiree can face, and one of the hardest to predict. Many people never need paid care. Others need it for years. Planning means deciding who pays if it happens, and making sure the rest of the household is protected.
What Medicare and Medicaid cover
A common surprise: Medicare doesn't pay for most long-term care. It pays for skilled nursing or rehab for a limited time after a hospital stay, and some home health care while you're recovering. It doesn't pay for ongoing help with daily living, which is what most long-term care is.
Medicaid does pay for long-term care, including nursing homes, but only once your income and assets are low enough. Rules vary by state. Medicaid also looks back five years at gifts and transfers. Giving money away to qualify can delay coverage.
Medicare supplement plans and Medicare Advantage don't fill this gap either. They help with medical bills, not custodial care.
That leaves four main ways to pay: your own savings, long-term care insurance, a hybrid policy, or family members who give care themselves.
Ways to pay for care
Pay from savings
If your savings are large enough, you can set aside money for care rather than buy insurance. This is called self-insuring. Money you don't use for care stays yours and passes to heirs. The risk is a long, costly need that eats into a surviving spouse's income.
A home is often the backstop. Selling it, or borrowing against it, can pay for years of care if one person moves into a facility and no one else lives there.
Traditional long-term care insurance
A traditional policy pays a set daily or monthly benefit when you can't perform a number of activities of daily living, or have a severe cognitive impairment. The main choices are:
- Daily benefit. The most it pays per day of care.
- Benefit period. How many years it pays, such as two, three or five.
- Elimination period. How long you pay for care yourself before benefits start, often 90 days.
- Inflation protection. How fast the benefit grows each year, such as 3% compounded.
Premiums for traditional policies aren't fixed. Insurers can raise them for a whole group of policyholders with state approval, and many have. If you stop paying, coverage usually lapses.
Hybrid life and long-term care policies
A hybrid policy combines life insurance or an annuity with long-term care benefits. If you need care, it pays care benefits. If you never do, your heirs get a death benefit. Premiums are often paid at once or over a set number of years, and are usually fixed.
The trade-off is cost. You pay more up front for a smaller care benefit than a traditional policy would buy.
Family care
Many people receive care from a spouse or children. That has real costs too: lost pay, lost retirement savings and strain on the caregiver's health. A plan that relies on family care should say so openly, and the family should agree.
A worked example
Ruth and Sam are both 62. They want to know what a care need could cost and how much a policy would help. In their area, suppose care costs about $8,000 a month today, or $96,000 a year.
They test a need starting at 82 and lasting three years. If care costs rise 4% a year, the yearly cost at 82 would be about $210,000.
Suppose a policy pays $150 a day today, for three years, after a 90-day elimination period, and the benefit grows 3% a year. By 82 it would pay about $271 a day, or roughly $99,000 a year.
| At age 82 | Per year |
|---|---|
| Cost of care | $210,000 |
| Policy benefit | $99,000 |
| Paid from savings | $111,000 |
The policy covers less than half the cost, because care costs are assumed to grow faster than the benefit. Ruth and Sam would still pay about $111,000 a year from savings, plus the first 90 days in full.
The question isn't just whether the policy pays off. It's whether, without it, Sam's income and savings would still cover his own life if Ruth needed care first.
Taxes and long-term care
Qualified long-term care costs count as medical expenses. If you itemize, medical expenses above 7.5% of your adjusted gross income are deductible. A year of heavy care costs can push you over that floor, even if you normally take the standard deduction.
Benefits from a tax-qualified long-term care policy are generally not taxable, up to federal limits. Premiums for a qualified policy can also count as medical expenses, up to limits that rise with your age.
A health savings account can pay qualified long-term care costs tax-free, and some long-term care premiums. See the HSA in retirement.
When to plan
Insurance gets more expensive and harder to qualify for with age and health problems. Many people look at coverage in their 50s or early 60s. If you decide to self-insure, decide which assets you'd use and keep them in your plan as a reserve.
Planning also includes paperwork. A health care power of attorney and a financial power of attorney let someone you trust act for you if you can't.
How the app handles long-term care
On the Insurance screen, the long-term care check estimates a need for each person. You enter the yearly cost of care today, when care might start and how long it lasts. The check grows the cost at your healthcare inflation rate and compares it with your policies' benefits, after the elimination period and with each policy's inflation growth.
It can also run a care event through your whole plan. You see your plan if nothing happens, with your current coverage, and without your long-term care insurance. Care costs are paid as healthcare spending, and policy benefits come in tax-free.
You can enter traditional and hybrid long-term care policies, with the daily benefit, benefit years, elimination period, inflation growth, premium and any death benefit.
Frequently asked questions
How likely am I to need long-term care?
Studies disagree, and the answer depends on your health, sex and family history. Because the range runs from no care to many years, test a long, costly need rather than an average one.
Does Medicare Advantage cover long-term care?
No. Some plans offer limited extra benefits, but they don't pay for ongoing custodial care.
Should a couple insure both people?
Often the risk is that the first person's care drains money the survivor needs. Testing a care event for each person shows which one leaves the household more exposed.