There’s a moment that almost every financial advisor recognizes. A client sits down across the desk, and instead of asking about market returns or Roth conversions, they say something like, “Mom fell last month. She’s in a memory care unit now, and we’re trying to figure out how to pay for it.”
Suddenly, long-term care is not a hypothetical line item on a retirement plan. It’s a $7,000 to $12,000 per month reality that needs to be planned for.
If you’re a baby boomer, the statistics are sobering:
Roughly 70% of people turning 65 today will need some form of long-term care services in their lifetime (U.S. Department of Health and Human Services, LongTermCare.gov)
About 20% will need care for longer than five years
The median annual cost of a private room in a nursing home is over $116,000, with assisted living around $64,000 per year and home health aides averaging about $75,000 per year
Women, on average, need 3.7 years of care; men need 2.2 years
Costs are rising at roughly 4–5% per year, outpacing general inflation
Now compound that. A 65-year-old today who needs care at age 85 could be looking at costs north of $250,000 per year in future dollars.
This is the conversation that becomes real the moment a family member has a stroke, a fall, or a dementia diagnosis. Suddenly the family is searching for facilities, hiring elder law attorneys, and seeing these costs that were once hypothetical, now becoming a reality. Many clients say the same thing: “I never want to put my kids through what I just went through with my parents.”
Good. That’s where planning begins.
Five Ways to Fund Long-Term Care
There is no single “best” answer. The right strategy depends on your net worth, health, family situation, and your tolerance for risk and complexity. Here are the five most common funding strategies.
1. Self-Insuring (Also Known as “I’ll Just Pay for It”)
Self-insuring means earmarking your own assets to cover potential long-term care costs. On paper, it sounds simple, and for the genuinely wealthy, it can be the most efficient and simple path.
But here’s the reality check: if you plan to self-insure, you should be prepared to set aside roughly $500,000 in today’s dollars that you are willing to spend over time. That reflects three to five years of care at today’s costs, adjusted for inflation, with a cushion for worst-case scenarios such as a long Alzheimer’s progression.
Self-insuring works great when:
You have $2–3 million or more in assets
You are emotionally comfortable spending a portion of your legacy
Your spouse remains financially secure even if a large portion is used for care
It is less effective when:
Your portfolio is your primary retirement income
You want to preserve assets for heirs or charitable goals
A market downturn coincides with the care event
2. Traditional Long-Term Care Insurance
This is the “use it or lose it” model most people think of. You pay an annual premium, and if you need care, the policy pays a daily or monthly benefit.
Pros:
Large benefits relative to premiums if used to full extent
Inflation protection options
Potential tax deductibility
Cons:
Premiums are not guaranteed and can increase significantly
No benefit if care is never needed
Strict underwriting requirements
Fewer carriers offer these policies today
3. Medicaid (The Government Safety Net)
Medicaid is the largest payer of long-term care in the United States, covering more than 60% of nursing home residents.
However, it is a needs-based program. To qualify, individuals must spend down most of their assets, often to very low levels.
Key considerations:
A five-year look-back period on asset transfers
Use of irrevocable trusts for asset protection
Spousal protection rules, though limited
Coverage is strongest for nursing home care, with variability for in-home or assisted living
Medicaid can provide a backstop, but planning must begin well in advance, and facility options may be limited.
4. Riders on Annuities or Life Insurance
Many annuities and permanent life insurance policies include chronic illness or long-term care riders.
How they work:
Life insurance policies allow early access of the death benefit for care
Annuities may increase payouts if care is needed
Pros:
Funds are used whether or not care is needed
Easier underwriting in many cases
Can leverage existing policies
Cons:
Benefits may be less robust than standalone policies
Accelerated withdrawals reduce the death benefit faster
Differences between chronic illness and long-term care riders can be significant
5. Hybrid (Asset-Based) Long-Term Care Policies
Like the above, hybrid policies combine life insurance or annuities with long-term care benefits, but these have a higher degree of focus to the LTC component.
How they typically work:
A lump sum or structured premium funds the policy
The deposit is leveraged into a larger care benefit pool
A death benefit is paid if care is not needed
Many offer return-of-premium features
Premiums are generally guaranteedand may offer growth potential
Example:
A $100,000 deposit might provide:
Monthly benefits of $6,000 to $8,000 for several years
A total benefit pool exceeding $500,000
A death benefit if unused
Pros:
Eliminates the “use it or lose it” concern
Predictable premium structure
More flexible underwriting (some offer guaranteed approvals)
Can reposition existing assets via a 1035 exchange
Cons:
Requires significant upfront capital
Must be used with after-tax (non-IRA) money
Lower growth potential compared to market investments
Tax treatment varies depending on structure
The Bottom Line for Boomers
The hardest part of long-term care planning is not the math. It is the conversation.
It means acknowledging that at some point, you may need help with basic daily activities. That is not an easy thing to picture.
But those who have gone through it with their own parents understand the stakes. They have seen the costs, the decisions, and the emotional toll.
They plan because they know.
If you have not had this conversation with your spouse, your children, or your advisor, now is the time to start. Waiting only reduces your options and increases your costs.
Final Thoughts
This article is for educational purposes only and does not constitute legal, tax, or financial advice. Long-term care planning involves complex rules that vary by state and individual circumstances.Consult a qualified financial professional and an elder law attorney before making decisions.
Disclosures
This material has been prepared for informational purposes only and should not be construed as a solicitation to effect, or attempt to effect, either transactions in securities or the rendering of personalized investment advice. This material is not intended to provide, and should not be relied on for tax, legal, investment, accounting, or other financial advice. You should consult your own tax, legal, financial, and accounting advisors before engaging in any transaction. Asset allocation and diversification do not guarantee a profit or protect against a loss. All references to potential future developments or outcomes are strictly the views and opinions of Richard W. Paul & Associates and in no way promise, guarantee, or seek to predict with any certainty what may or may not occur in various economies and investment markets. Past performance is not necessarily indicative of future performance.