The retirement plan you’ve built can be undone by one health event, unless you’ve decided ahead of time what will pay for care. Most retirement plans account for income, investments and taxes. Very few answer the question that matters most when health changes: who pays when you need help with daily life, and for how long? This guide walks through what long-term care really costs, what Medicare and your benefits won’t cover, and the six main ways to pay for it, so you can decide while you still have choices.
Key takeaways
- Someone turning 65 has almost a 70% chance of needing some type of long-term care, and Medicare, FEHB and TRICARE For Life generally don’t pay for ongoing custodial care.
- Paying for care from retirement accounts can turn a steady income plan into an unpredictable one, and leave a healthy spouse with far less.
- There are six main ways to pay for long-term care. Most of them depend on your health, so the best time to decide is before you need them.
The question in the parking lot
Hypothetical story for illustration.
Karen is 58, a federal employee about six years from retirement. Every Sunday she visits her mother, Ruth, at the care home. And every Sunday, before she goes inside, she sits in her car for a few minutes.
Two years ago, Ruth had a stroke. She needed help getting dressed, bathing and getting in and out of bed. At first, an aide came to the house. Ruth had about $180,000 in savings, and she always said it was “more than enough.”
It lasted less than two years. When it ran out, Ruth qualified for Medicaid, and she had to move to a facility that accepted it. Karen and her brother still cover the extras: clothes, toiletries, the phone bill, the little things that make the room feel like hers.
Today, sitting in the parking lot, Karen does the math on her own life. She has a good pension coming, a solid TSP and a husband who’s counting on retiring with her. And for the first time, she asks herself the question most people avoid: who’s going to pay for mine?
What long-term care really means
Long-term care isn’t the hospital stay after surgery. It’s ongoing help with everyday life, often called custodial care. Insurance policies usually measure it by six activities of daily living: bathing, dressing, eating, using the toilet, continence and moving in and out of a bed or chair. Needing help with two or more, or having a severe cognitive impairment such as dementia, is what typically qualifies someone for benefits.
It’s more common than most people think. According to the U.S. Administration for Community Living, someone turning 65 today has almost a 70% chance of needing some type of long-term care services in their remaining years. Women need care for an average of 3.7 years and men for 2.2 years, and about 20% of people will need it for longer than five years. And it’s expensive. The 2025 CareScout Cost of Care Survey puts the national median at $80,080 a year for in-home care (44 hours a week), $74,400 for assisted living and $129,575 for a private nursing home room. Those costs tend to rise over time, so the bill in 15 or 20 years will likely be higher.
What Medicare, FEHB and TRICARE do and don’t cover
This is where most retirement plans have a blind spot.
- Medicare generally covers skilled care, not custodial care. After a qualifying hospital stay of at least three days, it can cover up to 100 days in a skilled nursing facility, with a daily coinsurance after day 20, as long as you need skilled care. It generally doesn’t pay for ongoing help with daily living at home or in a facility.
- FEHB plans generally don’t cover long-term custodial care either. And the Federal Long Term Care Insurance Program has been closed to most new applicants since late 2022, so many federal employees can’t count on it. Check OPM for its current status.
- TRICARE and TRICARE For Life generally don’t cover custodial care. Some veterans may qualify for VA long-term care services, depending on service-connected disability, income and other factors.
In other words, for most people, the default plan for long-term care is their own savings.
How a health event drains a retirement plan
The danger isn’t only the cost of care. It’s what paying that cost does to everything else in the plan.
- Your income stops being predictable. A plan built on steady withdrawals suddenly needs much larger ones, year after year, with no end date.
- Taxes take a bigger bite. Withdrawals from a traditional TSP, 401(k) or IRA are generally taxed as ordinary income. To net $80,000 for care, you may need to withdraw closer to $100,000, which can also push you into a higher bracket and raise your Medicare premiums.
- Bad market timing makes it worse. If care starts during a down market, you’re forced to sell investments at low prices, and that money never gets the chance to recover.
- The healthy spouse pays the price. Every dollar spent on one spouse’s care is a dollar the other spouse won’t have to live on, possibly for decades.
A hypothetical example: A couple retires with $600,000 in pre-tax savings. One spouse needs in-home care for three years at about $80,000 a year. If they withdraw about $100,000 a year to cover the care and the taxes on it, roughly $300,000, half their savings, is gone in three years. The surviving spouse may live another 15 or 20 years on what’s left.
Six ways to pay for long-term care
When it comes to how to pay for long-term care, there’s no single right answer. Each option has real strengths and real trade-offs, and many families combine more than one.
| Option | How it works | Watch out for |
|---|---|---|
| Your own savings | You pay for care directly from your accounts. | Taxes on withdrawals, market timing and what’s left for your spouse. |
| Long-term care insurance | A policy that pays a daily or monthly benefit for care. | Requires health approval, premiums can rise over time, and if you never need care, there’s no payout. |
| Hybrid life and long-term care policy | Life insurance that can pay for care if you need it, or a death benefit if you don’t. | Usually a larger premium, often paid upfront or over a set number of years. |
| Life insurance with living benefits | Riders that let you use part of your death benefit early for a chronic or terminal illness or for care. | Triggers vary, payouts may be discounted, and what you use reduces the death benefit. |
| Medicaid | Government coverage for care once your assets and income are low enough. | Requires spending down, a five-year look-back on gifts and transfers in most states, and less choice of care. |
| VA benefits | Long-term care services for eligible veterans. | Eligibility depends on disability rating, income and priority group, and services vary by location. |
1. Paying from savings
Self-funding can work if you have substantial assets beyond what you need for income. The risk is that it turns one spouse’s care into the other spouse’s shortfall. If you plan to self-fund, decide which accounts you would draw from first, and how much would remain for the healthy spouse.
2. Traditional long-term care insurance
This is the most direct coverage. You pay premiums, and if you qualify for care, the policy pays a benefit up to its limits. Look closely at the benefit amount, how long benefits last, the waiting period before payments start and whether the benefit grows with inflation. Premiums are generally not locked in, and some insurers have raised them significantly over the years.
Two details many people miss:
- Tax treatment. Premiums for tax-qualified policies may be partly deductible as a medical expense, up to limits that rise with age, and HSA funds can generally be used to pay them, within the same limits.
- Partnership policies. In states with a Long-Term Care Partnership program, a qualifying policy can let you keep more of your assets if you later need Medicaid, generally dollar for dollar with the benefits the policy paid.
3. Hybrid life and long-term care policies
Hybrid policies combine life insurance with long-term care benefits. If you need care, the policy helps pay for it. If you never do, your beneficiaries receive a death benefit. That solves the “what if I never use it?” concern, but these policies typically require a larger premium, either as a lump sum or over a set number of years. Many hybrid policies also lock in the premium, though terms vary by product.
4. Life insurance with living benefits
Many life insurance policies now offer riders that let you use part of the death benefit while you’re living. The details matter:
- Chronic illness riders often require a condition expected to be permanent, and some pay a discounted amount when you use them.
- Long-term care riders are generally designed specifically to pay for care and typically don’t require the condition to be permanent.
- Either way, the money you use reduces what your beneficiaries receive later.
Living benefits can be a smart way to make one policy do two jobs: protect your family and help pay for care. But they’re one tool, not the whole plan.
5. Medicaid
Medicaid is the largest payer of long-term care in the country, but it’s a safety net, not a plan. To qualify, you generally have to spend down most of your assets. Most states look back five years at gifts and transfers, so moving money at the last minute usually doesn’t work. There are protections for a healthy spouse, but the rules are complex and vary by state, and your choice of care is more limited.
6. VA benefits for veterans
Veterans may be eligible for VA long-term care services, including nursing home care, home-based care and assisted living support in some cases. Eligibility depends on factors such as your service-connected disability rating and income, so check with the VA well before you need care.
Build your care plan: cover the gap, not the whole bill
You don’t have to insure every possible dollar of care. A stronger approach is to decide how much of the cost your plan can absorb, and protect the rest.
- Decide where you’d want care. At home, in assisted living or in a facility. The answer changes the cost.
- Find what your income can cover. Social Security, a pension or retired pay keep coming during care. The question is how much is left after your spouse’s living costs.
- Size the gap. The difference between the cost of care and what your income can cover, multiplied by how long care might last.
- Choose how to cover the gap. Savings, insurance, a hybrid policy, living benefits or a mix, based on your health, budget and what you want to leave behind.
A hypothetical example: If in-home care costs $6,700 a month and a couple’s income can spare $2,500 a month without leaving the healthy spouse short, the gap is about $4,200 a month. Over three years, that’s roughly $151,000. That’s the number to plan for, not the full $241,000.
Questions to ask about any long-term care option
- What triggers the benefit? How many activities of daily living, and does a cognitive impairment qualify?
- How much does it pay, and for how long? A monthly amount and a total limit.
- Is there a waiting period? Many policies wait 90 days before benefits start.
- Does the benefit keep up with inflation? Care will likely cost more in 20 years than it does now.
- Can the premium change? And what happens if you stop paying?
- What does using it reduce? Especially with life insurance riders, how much is left for your family?
Why this decision has a deadline
Here’s what Karen realized in that parking lot: most of these options depend on your health. Long-term care insurance, hybrid policies and life insurance with living benefits all require you to qualify. A diagnosis, a stroke or even a few new prescriptions can raise the price or close the door entirely.
That’s why your 50s and early 60s are often the best window to decide. You’re close enough to retirement to see your income clearly, and usually healthy enough to still have choices. Waiting until care is needed usually leaves only two options: savings and Medicaid.
Three conversations to have now
- With your spouse: If one of us needs care, where would we want to receive it, and how would we pay for it without leaving the other one short?
- With your children: What do we expect from each other? Many adult children become caregivers without ever discussing it.
- With a professional: Which accounts would pay for care, what would it do to our income and taxes, and is there a tool that fits our health and budget?
Frequently asked questions
Does Medicare pay for long-term care?
Generally, no. Medicare can cover up to 100 days of skilled nursing care after a qualifying hospital stay, but it doesn’t generally pay for ongoing custodial care, the everyday help with bathing, dressing and eating that most long-term care involves.
When should I plan for long-term care?
Ideally in your 50s or early 60s, while you’re likely to still qualify for coverage based on your health and before care is needed.
What’s the difference between a chronic illness rider and a long-term care rider?
Both let you use part of a life insurance policy’s death benefit while living. Chronic illness riders often require a condition expected to be permanent and may pay a discounted amount. Long-term care riders are generally designed specifically for care costs and typically don’t require permanence. Always compare the triggers and payouts in the actual policy.
Can I give my assets to my children to qualify for Medicaid?
Most states review gifts and transfers made in the five years before you apply, and transfers during that period can delay eligibility. Talk with an elder law attorney before making any transfers.
Retirement is a position, not a date
Karen didn’t solve everything in that parking lot. But she made one decision before she went inside: she would not leave her husband or her children the same question she was left with.
A retirement plan that only works while everyone stays healthy isn’t finished. Retirement isn’t an age. It’s an income, and a positioned retirement protects that income, and the spouse who depends on it, from the health event nobody plans for. You don’t have to know whether you’ll need care. You just have to decide, while you still can, what will pay for it if you do.
Your next step
A complimentary 10-minute Wealth Clarity Call is your opportunity to see what a health event would do to your retirement income, review your health coverage before and after Medicare, and talk through which options may fit your health and budget.
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This article is for educational purposes only and is not individual investment, tax, legal, insurance or Medicaid planning advice. The story and examples are hypothetical and do not represent any specific person. Cost-of-care figures are national medians from the CareScout 2025 Cost of Care Survey and vary by location. Medicare, Medicaid, FEHB, FLTCIP, TRICARE, VA, tax and state Partnership rules can change and depend on your circumstances; Medicaid eligibility and look-back rules vary by state. Long-term care insurance, hybrid policies and life insurance riders are subject to underwriting, and availability, benefits, triggers, costs and features vary by insurer, product and state; accelerated benefits reduce the death benefit and may have tax consequences. Guarantees depend on the claims-paying ability of the issuing insurance company. Shateka Husser Financial Solutions offers insurance and annuity products; this article is not a recommendation to buy or sell any product.
