The financials of long-term care: An overview of options

Planning for long-term care may be an uncomfortable topic we tend to avoid, but it’s one of the most vital discussions we can have for securing future peace of mind. It’s also a subject that holds particular relevance for women, given specific demographic realities. On average, women tend to live longer than men and may require long-term care for extended periods.

Over two-thirds of Americans 85 and older are women. Eight out of 10 centenarians are women. My Aunt Edith will turn 107 in November, and although she has had an apartment in an assisted living facility for about 25 years, she remains remarkably independent. But not all women fare as well, and according to the American Association for Long-Term Care Insurance, women typically require more long-term care than men.

Understanding the costs

But regardless of gender, there are plenty of options. Unfortunately, these options are becoming more expensive each year. Jeremy Clerc, founder and CEO of Assisted Living Magazine, said:

Home care, also known as home-based care, costs approximately $33 per hour for 44 hours per week, totaling $1,452 per week or $75,000 annually. Around-the-clock care can easily exceed $15,000 each month, he said.
Community-based care (adult day and respite) ranges between $95 and $100 per day. If your loved one goes five days per week, the cost is $25,000 to $26,000 per year.
Assisted living facilities have a national median monthly cost of $5,300, or $64,000 per year for a single bed, with costs rising annually.
Nursing homes (skilled nursing facilities) costs depend on care needs. A semi-private room averages $8,700 per month, and private accommodations are $9,700 per month.
Memory care costs an average of $7,000 per month, although in some states, such as California, the monthly cost can be as high as $15,000, depending on the facility.

As you can see, long-term care services are inherently expensive, with costs varying significantly based on the type of service and geographic location. Clerc’s figures serve as a baseline. The impact of inflation, currently around 3%, suggests these same expenses could rise significantly by 2050. Planning for long-term care today means factoring in strategies to mitigate the impact of inflation.

Navigating payment options: Your financial toolkit

Funding long-term care requires a strategic approach that draws primarily from three main avenues: private funds, long-term care insurance, and government programs such as Medicaid.

Private funds or self-funding

Many people initially cover part or all of their long-term care expenses using their personal resources, including savings, investments, retirement funds, or proceeds from the sale of a home. However, long-term care costs add up and deplete those funds rapidly. Some people find themselves stuck, where their living expenses keep rising while they experience cognitive decline and, while physically healthy, they nonetheless require many years of support.

If you’re considering self-funding, consider the tax implications. Withdrawing substantial amounts from tax-deferred accounts can increase your taxable income substantially. To avoid this scenario, you could convert portions of your tax-deferred assets to a Roth account [1] ahead of time or withdraw smaller amounts each year and save them in accessible accounts.

Home equity can also serve as a strategic asset. If you’re 62 or older, you can use a reverse mortgage, which converts part of your home equity into tax-free cash without requiring you to sell your home. Other options include home equity loans or refinancing an existing mortgage to free up money for long-term care expenses. This approach transforms your house from a residence into a reliable financial resource, offering liquidity without immediate displacement, which is valuable if you’d prefer to age in place as long as possible.

Once you’re paying for long-term care, Kevin Quinn, president and founding attorney of Legacy Counselors, P.C., said you can take advantage of the Schedule A tax deduction—uninsured long-term care costs for seniors. “Many seniors miss this deduction because they don’t itemize their deductions,” he said. “You or your tax preparer should compare the standard deduction and the Schedule A deduction to see which benefits you financially before you file. You won’t get the deduction on uninsured medical and dental expenses for the first 7.5% of your income, but you can deduct expenses on Schedule A 1040 that total more than 7.5% of your adjusted gross income.”

Long-term care insurance

Long-term care insurance was designed to help cover the costs of services and support, including help with activities of daily living (ADLs) in your home, an assisted living facility, or a skilled nursing facility. Policies vary, so if you’re shopping around, read the fine print to learn what’s covered, what’s excluded, and how long benefits last.

Benefits typically begin once you become cognitively impaired or are unable to perform at least two of the six ADLs (bathing, dressing, eating, toileting, transferring, and maintaining continence). Most policies include an “elimination period,” which functions like a deductible but is measured in time—typically 30, 60, or 90 days—during which you must cover the costs before the benefits kick in. You can opt for shorter elimination periods, but the premiums will cost more.

Policies also specify a daily amount, typically between $50 and $250 per day, paid up to a preset limit until you reach the lifetime maximum. Standard exclusions include mental and nervous disorders, alcoholism, drug addiction, and treatment that the government already covers.

What influences the cost of long-term premiums? Primarily age, health status when you purchase the policy, and the level of benefits you choose. For example, the 2025 average premium for a 55-year-old woman was $1,500 for a policy with $165,000 in initial benefits and a 2% annual increase. The premium increases to $2,700 at age 65. In other words, delaying the purchase of long-term care insurance can result in higher premiums or ineligibility if your health has declined.

Another possibility is a hybrid policy, which combines life insurance or an annuity with long-term care benefits. These policies can provide a death benefit or cash value if you don’t need long-term care. They often feature fixed premiums or a one-time payment, protecting your finances against future premium increases. Some refer to this approach as “moving money from one pocket to another,” as you leverage one asset for multiple potential uses. Finally, you can consider permanent life insurance with a long-term care rider, which will advance all or part of the death benefit to cover long-term care expenses.

Government programs

It’s a common misconception that Medicare covers long-term care expenses. Generally, this program only covers skilled services, such as short-term rehabilitation or skilled home health services, if specific criteria are met.

Medicaid, however, is a needs-based program that serves as the largest payer for long-term care in the U.S. It covers nursing facility care and community-based services, and is often considered a last resort for those with limited financial resources.

Planning for Medicaid eligibility includes several caveats and considerations:

This program rarely covers all long-term costs.
Gifting assets to qualify for Medicaid may be too late. There’s a five-year “look-back” period for gifts made after February 6, 2006. If you’ve gifted financial assets to family within this timeframe, you may have a period of ineligibility.
Certain life estate deeds can allow property to pass automatically to your heirs upon death while still enabling Medicaid qualification. Your best bet? Talk to an elder law attorney.
An elder law attorney can also help establish a durable power of attorney (POA) specifically designed to protect assets and address aging-related issues in ways a standard POA can’t.
Eligible veterans may qualify for benefits that can help cover certain long-term care services, depending on the level of care required.

Taking control of your long-term care journey

The best time to address long-term care planning is while you’re still in good health. A proactive approach allows for thoughtful decision-making rather than quick, reactive measures in a crisis. Is it fun? Nope. Is it necessary? Absolutely.

Fortunately, there are numerous resources available to help, including financial planners and attorneys specializing in elder law, as well as organizations such as the National Institute on Aging and the list of resources provided by Medicare.

The financials of long-term care: An overview of options

Understanding the costs