Long-Term Care Planning: Costs, Insurance and Self-Funding

Between about $75,000 and $130,000 a year at national median prices, depending on the setting. The CareScout Cost of Care Survey 2025, formerly Genworth's survey and still run by a Genworth subsidiary, collected rates from providers in all 50 states between July and November 2025 (CareScout Cost of Care Survey, 2025).

Three cautions about these medians. First, location dominates: the same care can cost half as much in one state as in another, so look up your own metro area. Second, round-the-clock care at home is far more expensive than the 44-hour figure; at $35 an hour, 24-hour coverage would run over $300,000 a year, which is why people with heavy needs usually move to a facility. Third, assisted living fees often rise with the level of care, and many communities charge an entrance fee on top.

Likely enough to plan for. Someone turning 65 today has almost a 70% chance of needing some type of long-term care services, and will need it for about three years on average: 3.7 years for women and 2.2 for men. Twenty percent will need care for longer than five years (Administration for Community Living).

The same federal data show where care happens. About 65% of people receive care at home at some point, and 59% get unpaid care from family, usually for about a year. About 35% use a nursing facility, typically for about a year, and 13% use assisted living (ACL). In other words, the most common case is a spouse or child doing much of the work for a while, followed by paid help, followed for about a third of people by a facility.

That distribution is why averages mislead. Most people need less than the average. A minority need a great deal: five or more years, often with dementia, often at facility prices. Planning is about the tail, not the average, and for a married couple it is about the spouse who remains at home.

You do, until either an insurance policy or Medicaid takes over. Medicare does not pay for long-term care, and neither do Medigap policies, because most long-term care is non-medical (Medicare.gov). Medicare's skilled nursing benefit is for recovery, not for ongoing custodial care: it requires an inpatient hospital stay of at least three days in a row and covers up to 100 days per benefit period, free for days 1 to 20 and at $217 a day for days 21 to 100 in 2026 (Medicare.gov, 2026).

Some of what you pay may be tax-deductible. Qualified long-term care services for a chronically ill person count as medical expenses, as do premiums for a tax-qualified long-term care policy up to an age-based limit (IRS Publication 502). For 2026 the premium limit is $4,960 per person aged 61 to 70 and $6,200 over 70 (IRS Rev. Proc. 2025-32). Medical expenses are deductible only above 7.5% of AGI and only if you itemize, but a year of paid care often clears that bar easily, which matters when the care is funded from IRA withdrawals. HSA money can also pay qualified premiums up to the same limits (IRS Publication 969).

When you apply for Medicaid long-term care, the state reviews every transfer you or your spouse made for less than fair market value in the 60 months before the application, such as cash gifts to children or retitling a house (CMS). A transfer inside the window creates a penalty period during which Medicaid will not pay. The penalty is the amount transferred divided by the state's average monthly cost of nursing home care, and it starts on the later of the transfer date or the date you would otherwise qualify.

That start date is the trap. A $150,000 gift to a child three years before a nursing home admission, in a state where the average monthly cost is $10,000, means 15 months with no Medicaid coverage, starting only after the rest of the money has been spent. The family then has to find the care money from somewhere, often from the child who received the gift.

Three other rules matter to homeowners with means. Medicaid will not pay long-term care for a person whose home equity exceeds a limit set in 2006 at $500,000, which states could raise up to $750,000 and which is now adjusted for inflation each year, unless a spouse or a minor or disabled child lives there (CMS). Spousal impoverishment rules protect a portion of a couple's assets and income for the spouse who stays at home (Medicaid.gov). And for recipients 55 or older, states must seek repayment from the estate after death for nursing home and home-care costs, though they cannot recover while a surviving spouse, a child under 21, or a blind or disabled child is living (Medicaid.gov).

Traditional insurance buys the most coverage per dollar; hybrid insurance buys certainty. A traditional long-term care policy pays a daily or monthly benefit for a set period once you cannot perform two of the six activities of daily living or need supervision for severe cognitive impairment, after a waiting period, commonly 90 days. You pay premiums every year, and if you never need care, the premiums are gone. The major drawback is that premiums are not locked: insurers can raise them on a whole class of policies with state approval, and many older policies have seen large increases.

A hybrid policy is life insurance or an annuity with a long-term care benefit attached. You pay a single premium or a fixed number of premiums. If you need care, the policy pays benefits, typically a multiple of the death benefit. If you never need care, your heirs receive the death benefit; many policies also return some or all of the premium if you surrender. The trade-off is less care coverage per dollar than a traditional policy and a large amount of money committed up front.

Whichever you consider, four features determine the value: the daily or monthly benefit, the benefit period or pool of money, the waiting period, and inflation protection. A policy bought at 60 without inflation protection will pay 2026 dollars for care bought in 2046. Ask for a benefit that grows, and compare policies on the benefit available at 85, not the benefit on day one. For tax-qualified policies, benefits paid on a per-diem basis are tax-free up to $430 a day in 2026 (IRS Rev. Proc. 2025-32).

When your portfolio can pay for a long care episode and still support the healthy spouse. Self-funding does not mean doing nothing. It means naming a reserve, holding it in assets that will be there when needed, and deciding in advance which account pays. A reasonable reserve is the cost of about three years of care at local prices, with the home as a second line of defense if one of you moves permanently into care.

The advantages are real. You pay no premiums and face no premium increases, no claims disputes and no definitions of eligibility. The money you do not use stays in the estate. And you keep full control over the kind of care, including family caregivers whom a policy might not pay. The disadvantage is concentration of risk: the rare ten-year dementia case can consume far more than a three-year reserve.

Which account pays matters for tax. Care bought with IRA withdrawals generates taxable income, but a large share may be offset by the medical expense deduction. Care bought from a taxable account may trigger capital gains. Roth money is tax-free and is often best saved for last, for heirs. Our guide to withdrawal order covers the general sequence.

Start with investable assets excluding the home, then adjust for income and health. These bands are our rule of thumb, not a rule; family history, marital status and state all move them.

A widow or widower needs less than a couple, since there is no one at home to support. A single person with no children and no plans for a bequest can reasonably spend down and rely on Medicaid at the end. A couple where one spouse has a strong family history of dementia should lean toward insurance at every level, if still insurable.

Use our Healthcare Cost Estimator to project ordinary medical costs first, then layer a care reserve on top, and test the result in the Retirement Withdrawal Calculator as a lump withdrawal in your 80s.

Walter is 76 and June is 72. They have $2.6 million invested ($1.5 million in IRAs, $900,000 in a taxable account, $200,000 in cash), a paid-off house worth $800,000, and $5,200 a month from Social Security. They spend $110,000 a year. They never bought long-term care insurance and, at their ages and with Walter's heart condition, a traditional policy is no longer realistic. They are hypothetical.

The scenario. We test a demanding but common case: at 80, Walter needs three years of home care at 44 hours a week, then one year in a nursing home. At 2025 national medians, that is 3 × $80,080 plus $129,575, or about $370,000in today's dollars.

Can the portfolio absorb it?Yes. $370,000 is 14% of their investments, spread over four years. During those years their withdrawal rate rises from about 1.8% ($110,000 less $62,400 of Social Security, on $2.6 million) to roughly 5%, then falls back. Because much of the care would be paid from IRA withdrawals, the medical expense deduction would offset a large part of the extra income. After Walter's death, June keeps the larger of their two Social Security benefits, the house, and a portfolio still well above $2 million in the base case.

What if it is June, and it lasts longer?The harder case is June needing six years of care in her late 80s after Walter has died, with the tail of dementia care priced at nursing-home rates: roughly $630,000 to $780,000 in today's dollars. That is still affordable, and the house is available as a second reserve if she moves permanently into care. No one is impoverished; the bequest to their children is smaller.

Their decision. They self-fund, but on purpose. They earmark $400,000 of the taxable account as a care reserve in short-term Treasuries and TIPS, so a market decline cannot shrink it at the wrong moment. They sign durable powers of attorney and health care directives, write down which account pays for care, and tell their children the plan. They do not give away money for Medicaid purposes; at their level of wealth, Medicaid is not the plan, and gifts inside the five-year window would only complicate a later application. Our gifting guide covers what they give instead.