Long-Term Care: A Financial Blind Spot for Many Retirees

Long-term care is one of the most underestimated and underplanned aspects of retirement. Many retirees hope they won’t need it—or assume Medicare will take care of it. Unfortunately, the reality is far different.

Ignoring long-term care needs can have serious financial consequences. According to the U.S. Department of Health and Human Services, roughly 70% of people turning 65 today will need some form of long-term care. These services, ranging from in-home care to assisted living or nursing facilities, can cost thousands of dollars per month and are not typically covered by Medicare.

That’s why long-term care financial planning for retirees is not just a health issue—it’s a financial one.

Why Long-Term Care Is a Financial Blind Spot

Many retirement plans focus on market performance, income strategies, and tax planning—but they often leave out long-term care planning. Here’s why that’s a problem:

Unexpected Expenses: A long-term care event can quickly erode retirement savings, especially if one spouse needs care while the other still depends on those assets.

Medicare Limitations: Medicare does not cover most long-term care services beyond short-term skilled nursing after a hospitalization.

Misunderstanding Medicaid: Qualifying for Medicaid requires spending down nearly all assets, which can leave a surviving spouse financially vulnerable.

Lack of Flexibility: Without a plan, retirees may be required to withdraw from tax-deferred accounts, which could potentially increase their tax liabilities.

For many families, these risks only become apparent when it’s too late to plan ahead effectively.

A Tax-Efficient Approach to Long-Term Care

The Power of Zero philosophy suggests a forward-looking approach to long-term care financial planning for retirees—one that accounts for future tax increases, asset preservation, and income flexibility.

Let’s discuss a few tax-aware strategies that may help address this often-overlooked risk:

1. Life Insurance with Long-Term Care Riders

Some types of life insurance—such as indexed universal life (IUL) policies—offer riders that allow policyholders to access their death benefit during life to cover qualified long-term care expenses.

This strategy offers several benefits:

Tax-Free Access: Funds used for long-term care under the rider are typically tax-free.

No “Use It or Lose It”: If long-term care is never needed, the death benefit can still be passed to heirs.

Built-In Flexibility: This dual-purpose coverage can complement other parts of a retirement plan.

2. Hybrid Annuities for Long-Term Care

Hybrid annuities are designed to provide lifetime income while also offering enhanced payouts in the event of a long-term care need. These can be particularly helpful for retirees who want to prepare for potential expenses without purchasing traditional long-term care insurance.

A fixed indexed annuity with a lifetime income rider and long-term care multiplier could potentially provide income support in the event of a qualifying health event.

3. Roth Conversions to Reduce Tax Impact

Should a long-term care event occur, withdrawals from tax-deferred accounts like IRAs and 401(k)s could push a retiree into a higher tax bracket. Roth conversions executed in earlier years can reduce future tax liabilities and give retirees more flexibility when covering large healthcare costs.

Planning these conversions while taxes are historically low may be a strategic move for those anticipating higher expenses later in life.

4. Set Aside Funds in a Tax-Free Bucket

Whether it’s through an IUL, Roth IRA, or Health Savings Account (HSA), building a tax-free pool of money for health-related needs can provide options. While HSAs are only available to those with high-deductible plans before Medicare eligibility, their tax advantages make them a useful part of a long-term strategy.

5. Protecting Spouses and Loved Ones

One of the most overlooked consequences of a long-term care event is the financial stress it can place on a healthy spouse. Planning ahead with a tax-efficient, income-preserving strategy helps reduce this burden and preserve assets for the non-impacted spouse or future generations.

Don’t Let Long-Term Care Derail Your Retirement Plan

A comprehensive retirement strategy must go beyond investment and income projections. It must also address potential long-term care costs with tools that provide financial flexibility and tax efficiency.

Long-term care financial planning for retirees isn’t just about covering future medical needs—it’s about protecting your lifestyle, your loved ones, and your ability to make choices later in life. Planning ahead puts you in control.

Explore Long-Term Care Financial Planning for Retirees

At Hanson Wealth Management, we help retirees explore strategies that align with their personal goals, income needs, and health care concerns—including long-term care planning. If you’d like to understand how your current plan addresses this key retirement risk, we invite you to connect with our team and start the conversation.

Share the Post:

Schedule your one-on-one strategy session today

SCHEDULE STRATEGY SESSION

The Rising Cost of Healthcare and What You Can Do About It

Healthcare expenses are one of the most significant—and often unpredictable—costs in retirement. From prescription drugs and routine care to long-term care needs, the rising cost of healthcare in retirement has become a central planning issue. While many retirees expect Medicare to cover the majority of their expenses, the reality is that out-of-pocket costs often increase over time. Without proper planning, these rising costs can strain retirement income, especially when combined with other risks like tax increases or market volatility. This is where a Power of Zero approach can offer a different way forward. By shifting resources to more tax-efficient […]

Setting Financial Goals for the Year Ahead: A Retiree’s Guide

Retirement may represent the culmination of a lifelong savings journey, but that doesn’t mean planning stops. In fact, setting financial goals for retirees is a key part of staying intentional with your spending, adjusting to life changes, and aligning your resources with what matters most. Whether you’re entering your first year of retirement or have been retired for a decade, each year presents an opportunity to reevaluate and realign. Setting goals allows you to stay connected to your financial plan and gives your retirement lifestyle a clear direction.

How to Make Better Long-Term Financial Decisions

Financial decisions shape your future, but many people focus on short-term outcomes rather than building a sustainable long-term strategy. Whether you are planning for retirement, managing investments, or structuring your tax strategy, making better long-term financial decisions requires a mix of discipline, knowledge, and strategic planning. By avoiding common mistakes and following a structured approach, you can create a financial plan that supports your goals and helps mitigate risks along the way.

Why a Financial Check-Up Matters—Even in Retirement

Just because you’ve retired doesn’t mean your financial planning is complete. In fact, retirement often brings about new variables that require ongoing attention. A regular financial check-up in retirement can help you stay aligned with your goals, adjust to changing market conditions, and evaluate your current income, spending, and tax strategies. Unlike the accumulation phase, retirement is a time of distribution and preservation. That shift demands thoughtful monitoring—not just to track investment performance, but also to help ensure that income sources remain sustainable and tax-efficient.

How Behavioral Biases Influence Your Financial Choices

When making financial decisions, logic and rational analysis should ideally guide the way. However, human psychology often plays an unexpected role in how people manage their investments, savings, and retirement plans. Behavioral biases in financial decision-making can lead to choices that may not align with long-term goals. Understanding these biases can help you take a more strategic approach to your financial future.

How to Avoid the Biggest Investment Mistakes Retirees Make

Retirement investing requires a different approach than wealth accumulation. The transition from growing assets to withdrawing income introduces new risks and potential pitfalls. Many retirees make mistakes that can impact their financial stability, often without realizing it until it’s too late. By understanding how to avoid the biggest investment mistakes retirees make, you can develop a retirement strategy that balances income, risk, and longevity.