What Should I Be Doing About Healthcare and Long Term Care Costs?
The question many families eventually face is simple but urgent, what should I be doing about healthcare and long term care costs. For retirees, professionals nearing retirement, and older adults already managing fixed income, these costs represent one of the greatest financial risks in later life. Rising costs, longer life expectancy, and complex insurance decisions mean that health care planning is no longer a side conversation, it is central to protecting your money, independence, and peace of mind.
At Towerpoint Wealth, this conversation started years ago with clients who wanted clarity. They were not only concerned about investments and income, but about how medical expenses, insurance premiums, and long term care needs could disrupt even the strongest retirement plan. The reality is that healthcare costs and long term care costs are often underestimated, yet they can exceed housing, travel, and lifestyle spending combined.
The Real Cost of Healthcare in Retirement
Lifetime Healthcare Cost Projections
Healthcare costs in retirement continue to climb faster than general inflation. Retirement research shows that medical costs accumulate gradually but persistently over time. About half of retirees report that health care spending is higher than expected, and one third say medical expenses are one of their top financial stressors.
Healthcare expenses typically include Medicare premiums, insurance premiums for supplemental insurance, out of pocket costs such as co pays and deductibles, prescription drugs, and services not covered by Medicare coverage like dental care and vision. For married couples, these costs are compounded, especially when one spouse experiences declining health.
Many retirees underestimate how monthly premium increases over time can affect cash flow. Even small increases in premiums, combined with rising out of pocket costs, can significantly reduce discretionary income. This is why healthcare expenses should be modeled alongside income and Social Security benefits, not treated as an afterthought.
What Medicare Covers and What It Does Not
Medicare is a critical foundation for health insurance in retirement, but it is not comprehensive. Traditional Medicare, also known as Original Medicare, consists of Parts A and Part B. Parts A covers hospital costs and inpatient services, while Part B covers outpatient medical services, doctor visits, and preventive care. Medicare Part D helps with prescription drugs.
Despite this structure, Medicare coverage has limits. Original Medicare does not cover most long term care, routine dental care, hearing aids, or extended custodial care. Many people assume Medicare will pay for assisted living facility care or a nursing home stay, but that assumption can be costly.
Medicare Advantage plans are an alternative to traditional Medicare. Medicare Advantage plans may bundle Parts A, Part B, and Part D, and often include additional benefits. However, they can involve network restrictions, higher premium structures in some cases, and different out of pocket costs. Choosing between Original Medicare and Medicare Advantage requires careful review of medical needs, income, and risk tolerance.
The Hidden Costs of Healthcare
Healthcare spending is not just about planned services. Chronic conditions, hospital stays, and unexpected procedures can quickly increase medical costs. Hospital costs alone can create significant financial pressure if coverage gaps exist.
Prescription drugs are another growing expense. Even with Medicare Part D, many retirees pay out of pocket for medications, especially specialty drugs. Over time, these medical expenses can erode savings and force difficult tradeoffs.
Health insurance decisions also affect taxes. Some qualified medical expenses can be paid tax free through Health Savings Accounts if available, but many retirees lose access once they transition fully to Medicare. Without planning, retirees may pay more than necessary for care they did not anticipate.
Understanding Long Term Care and Its Financial Impact
Who Needs Long Term Care
Long term care is not limited to a nursing home. It includes a wide range of services that support daily living, such as help with bathing, dressing, eating, and mobility. Long term care may be provided at home, in an assisted living facility, or in a nursing home with a private room or shared accommodations.
Statistics consistently show that about two thirds of older adults will need some form of long term care during their lifetime. For many, care is required for several years. A family member often becomes involved, either as a caregiver or decision maker, which adds emotional and financial strain.
Current health does not guarantee future independence. Even healthy individuals may need long term support following an illness, injury, or diagnosis of chronic conditions like dementia.
Cost Breakdown of Long Term Care in 2025
Care costs vary by location and level of care, but they are universally high costs. A nursing home stay, particularly in a private room, can exceed six figures annually. Assisted living facility costs are lower but still significant. Home based support services can also add up quickly, especially when care is required daily.
Long term care insurance exists to address this risk, but policies vary widely in benefit periods, daily benefit amounts, and inflation protection. Without coverage, many families pay out of pocket, which can rapidly drain retirement assets.
Long term care costs are one of the primary reasons retirees experience financial stress later in life. Unlike other expenses, these costs often occur at the same time income is declining and medical needs are increasing.
Why Long Term Care Costs Are Rising
Rising costs in long term care are driven by labor shortages, increased demand, and regulatory requirements. The American Association of Retired Persons and other research organizations consistently point to workforce challenges as a major contributor.
As the population ages, the ratio of caregivers to older adults declines. This imbalance increases care costs across all settings. These trends suggest that long term care costs will continue to rise, making early planning even more important.
What Government Programs Can and Cannot Do
Medicare Versus Medicaid
Medicare plays a limited role in long term care. It may cover short term skilled care following a hospital stay, but it does not pay for ongoing custodial care. Medicaid coverage does include long term care, but it is a means tested program.
To qualify for Medicaid, individuals must meet strict income and asset limits. Many families are surprised to learn that they must spend down savings to qualify, which can conflict with legacy goals. Medicaid coverage rules also vary by state and may limit choice of facilities and services.
The Kaiser Family Foundation has published extensive data showing that Medicaid is the largest payer of long term care services in the United States, highlighting how many families eventually rely on it despite initial intentions to self fund.
Veterans Benefits and Other Support
Some veterans may qualify for benefits that help pay for care costs, but eligibility rules are strict. These benefits may offset some expenses but rarely cover the full cost of long term care.
Other support services exist at the state or local level, but they are often limited and subject to availability. Relying solely on government programs can expose families to gaps in necessary care.
Smart Strategies to Plan for Healthcare and Long Term Care Costs
Incorporating Healthcare Into Your Retirement Plan
Planning for health care costs should be part of every comprehensive retirement plan. This includes estimating premiums, out of pocket costs, and potential increases over time. Health care spending should be coordinated with income sources like Social Security, pensions, and investment withdrawals.
A financial advisor can help model different scenarios, including higher premium years or unexpected medical events. This planning helps reduce the likelihood of needing to sell investments during market downturns to pay medical bills.
Reducing health care spending where possible is also part of the strategy. This may involve reviewing insurance coverage annually, evaluating Medicare plans, and understanding how to use benefits efficiently.
Long Term Care Insurance and Hybrid Policies
Long term care insurance is designed specifically to address long term care risk. Policies can pay benefits for home care, assisted living, or nursing home stays. Benefit periods and daily benefit amounts vary, and premiums are influenced by age and health at the time of application.
Some policies are standalone, while others are hybrid products that combine life insurance with long term care benefits. These hybrid policies may offer financial protection if care is needed, and a death benefit if it is not.
Premiums for long term care insurance can be significant, and some policies carry a higher premium in exchange for richer benefits. Evaluating whether insurance is appropriate depends on income, assets, age, and family history.
Self Funding Long Term Care
For higher net worth individuals, self funding long term care may be an option. This approach involves setting aside assets specifically for future care costs. While this avoids insurance premiums, it requires discipline and careful investment management.
Self funding also carries risk. Long term care expenses may occur during periods of market volatility, increasing the likelihood of having to pay out of pocket from depressed assets. Coordinating this strategy with a tax advisor and financial advisor is critical.
The Role of Estate and Legacy Planning
Protecting Family Wealth From Medical Spend Down
Without planning, medical costs and long term care expenses can significantly reduce the assets intended for heirs. Estate planning strategies can help provide legal and financial protection, but they must be implemented well in advance.
Trusts, gifting strategies, and coordination with Medicaid rules require careful timing. Income and asset transfers are subject to lookback periods, and mistakes can limit future coverage options.
Planning for Caregiver Roles
Long term care planning is not only about money. It also involves preparing family members for decision making roles. Clear documentation, including powers of attorney and health directives, helps ensure that care decisions reflect personal wishes.
Having these conversations early can reduce stress for family members and ensure necessary care is delivered without confusion or conflict.
Working With a Fiduciary Advisor
A fiduciary financial advisor brings clarity to complex health care and insurance decisions. This includes evaluating insurance options, projecting costs, and coordinating strategies with tax planning.
Healthcare planning is not static. Medicare plans change, premiums increase, and personal health evolves. Ongoing review ensures coverage remains appropriate and affordable.
Conclusion
Healthcare and long term care costs are among the most significant financial challenges facing retirees today. Rising costs, complex insurance choices, and the potential need for long term support make proactive planning essential.
By understanding Medicare, evaluating insurance coverage, planning for long term care, and integrating these factors into a comprehensive financial plan, families can protect both their health and their money. Thoughtful planning provides confidence, flexibility, and the ability to focus on living well, even as care needs change.
Frequently Asked Questions
How much should I expect to pay for healthcare in retirement?
Healthcare costs vary widely, but many retirees face hundreds of thousands of dollars in medical expenses over retirement, including premiums and out of pocket costs.
Does Medicare pay for long term care?
Medicare does not cover ongoing custodial long term care. It only covers limited short term skilled care under specific conditions.
Is long term care insurance worth it?
Long term care insurance can provide valuable financial protection, but it is not right for everyone. Age, income, and assets all matter.
Can I use tax free accounts for medical care?
Qualified medical expenses may be paid tax free through certain accounts, but rules depend on account type and coverage.
When should I start planning for long term care?
The earlier the better. Planning in your 50s or early 60s offers more options and flexibility.
How do I balance insurance premiums with retirement income?
A financial advisor can help evaluate premiums, benefits, and cash flow to ensure coverage fits within your broader retirement plan.
Conclusion
Healthcare and long term care costs are among the most significant financial challenges facing retirees today. Rising costs, complex insurance choices, and the potential need for long term support make proactive planning essential.
By understanding Medicare, evaluating insurance coverage, planning for long term care, and integrating these factors into a comprehensive financial plan, families can protect both their health and their money. Thoughtful planning provides confidence, flexibility, and the ability to focus on living well, even as care needs change.
