Caregiving often becomes a major retirement expense, and most people don't budget for it
If you retire at 65, there is roughly a 70 percent chance you will need some form of long-term care before you die. That care might be a few hours of help each week, or it might be full-time nursing home placement. The costs range from $15,000 to $100,000+ per year depending on where you live and what type of care you need. Most retirement plans do not account for this, which means caregiving expenses can drain savings that were meant to last 20 or 30 years.
Caregiving responsibilities also affect your retirement in a second way: you may become the caregiver for a parent, spouse, or adult child. If you do, you might work fewer hours, leave the workforce entirely, or reduce your own retirement contributions. Planning for this possibility now means you can adjust your savings target and income strategy before retirement arrives.
This guide walks through the actual costs of care, how to estimate what you might need, and the financial tools available to cover those costs. It does not predict whether you will need care or how much you will spend — that depends on your health, family history, and where you live. But it gives you the information to make a plan instead of facing the bill unprepared.
Key Takeaways
- Long-term care costs range from $4,000 to $8,000 per month for in-home help and $6,000 to $15,000 per month for assisted living or nursing homes, depending on your location.
- Most Medicare and standard health insurance do not cover long-term care, so you must plan to pay out of pocket, use Medicaid, or purchase a separate insurance policy.
- If you become a caregiver for a family member, your own retirement savings and Social Security benefits may be affected, so you should model this scenario in your retirement budget.
- Long-term care insurance, life insurance with a long-term care rider, and Medicaid planning are the three main financial tools people use to cover care costs.
- The earlier you buy long-term care insurance, the lower your premiums; waiting until 60 or later makes the policy much more expensive or harder to obtain.
What long-term care actually costs in your state
Long-term care means help with daily activities — bathing, dressing, eating, using the toilet, moving around — when you can no longer do these things on your own. It does not mean hospital stays or short-term recovery. The cost depends on the type of care and where you live.
In-home care (a caregiver coming to your house a few hours per day) costs between $4,000 and $8,000 per month in most states, though it runs higher in urban areas and lower in rural ones. Assisted living facilities (where you have your own apartment but staff help with meals and medications) typically cost $5,000 to $10,000 per month. Nursing homes (24-hour medical care) range from $6,000 to $15,000 per month. These are 2024 figures and increase roughly 2 to 3 percent per year.
To find current costs in your area, contact your local Area Agency on Aging (search "Area Agency on Aging" plus your county name) or call your state's Medicaid office. They can tell you what facilities charge and what the average stay length is. This gives you a real number to plug into your retirement budget instead of guessing.
How to estimate your own caregiving risk and cost
You cannot know for certain whether you will need care, but you can make an educated estimate based on family history and current health. If both your parents needed long-term care, your risk is higher. If you have a chronic condition now (diabetes, heart disease, cognitive decline), your risk is higher. If you are in excellent health and your parents lived independently into their 90s, your risk is lower.
A practical approach: assume you might need three to five years of care at some point after age 80. Use the costs from your state (from the previous section) and multiply by 12 months and by the number of years. For example, if in-home care costs $6,000 per month where you live, and you budget for four years, that is $288,000. Add 2 to 3 percent per year for inflation between now and when you might need it. This becomes your caregiving reserve — money set aside separately from your regular retirement spending.
If you have a family history of early cognitive decline or if you are already experiencing memory problems, talk to a financial planner or elder law attorney about whether you should plan for more intensive (and more expensive) care. The same applies if you have no family members who could provide informal care — you will rely entirely on paid services.
What Medicare and insurance actually cover
Medicare does not cover long-term care. It covers up to 100 days of skilled nursing care after a hospital stay of at least three days, but that is recovery care, not long-term care. Once those 100 days end, you pay out of pocket.
Standard health insurance (through your employer or the Affordable Care Act marketplace) also does not cover long-term care. It covers doctor visits, hospital stays, and prescription drugs, but not help with bathing or dressing or 24-hour supervision.
Medicaid does cover long-term care, but only after you spend down your assets to a very low level (usually $2,000 or less, though this varies by state). Medicaid is a needs-based program, not an insurance program. You must be poor enough to may have access to. If you have $200,000 in savings, Medicaid will not help you until you have spent most of it on care. This is why people sometimes work with elder law attorneys to plan their assets years in advance — to structure their finances so they can access Medicaid without losing everything to care costs.
If you want coverage that does not require you to be poor first, you need either long-term care insurance or a life insurance policy with a long-term care rider.
Long-term care insurance: how it works and when to buy
Long-term care insurance is a separate policy (not part of your health insurance) that pays a daily or monthly benefit toward care costs. You choose the benefit amount ($100 to $300+ per day, depending on the policy) and the length of coverage (three years, five years, or lifetime). You pay a premium, usually monthly or annually.
The premium depends on your age when you buy the policy, your health, and the benefit amount. A 55-year-old in good health might pay $1,500 to $3,000 per year for a policy that pays $150 per day for five years. A 65-year-old pays roughly double that. A 75-year-old may pay three to four times as much, or may be denied coverage entirely if they have health problems. This is why financial planners recommend buying long-term care insurance in your 50s if you think you will want it — the premiums are much lower, and you are more likely to be approved.
The downside: if you never need care, you lose all the premiums you paid. Some policies offer a return-of-premium rider (you get your money back if you never use the benefit), but this makes the premium much higher. Others offer a hybrid policy that combines long-term care insurance with life insurance or an annuity, so you get a death benefit or income stream even if you never need care.
To compare policies, get quotes from at least three insurers (Genworth, Mutual of Omaha, and Transamerica are large players, but there are others). Ask each one for the same benefit amount and coverage length so you can see the price difference. Work with an insurance broker or your financial advisor if you have one — they can help you understand what each policy actually covers and what it excludes.
Planning if you become a caregiver for a family member
If you retire and then become the primary caregiver for a parent, spouse, or adult child, your retirement income and savings may be affected. You might reduce your hours at a part-time job, stop working entirely, or delay claiming Social Security to stay home. Each of these changes your retirement math.
If you are still working and you reduce your hours to provide care, your income drops immediately. If you are already retired and you become a caregiver, you may spend down savings faster because you are paying for the care recipient's expenses (medications, medical equipment, facility costs) or because you are not earning income to offset your spending.
The practical step: model this scenario in your retirement budget now. Assume you might need to reduce your income by 25 to 50 percent for two to five years to provide care. Recalculate how long your savings will last under this scenario. If the answer is "not long enough," you have time now to save more, delay retirement, or adjust your spending plan. If you wait until caregiving actually happens, you have no flexibility.
Also ask: who else in your family might share caregiving duties? If you have siblings, could they take turns? Could you hire help for some tasks and provide care for others? Could you move the care recipient into your home, or would they live elsewhere? These decisions affect both the emotional burden and the financial cost. Talking through them with family members before a crisis happens makes the actual caregiving phase much less chaotic.
Medicaid planning and asset protection strategies
If you do not buy long-term care insurance and you do not have enough savings to pay for years of care out of pocket, Medicaid becomes your backstop. But Medicaid requires you to be poor first. An elder law attorney can help you structure your assets so that you can access Medicaid without losing everything, but this requires planning years in advance.
Common strategies include placing assets in an irrevocable trust, giving money to family members, or buying a home or paying off a mortgage (Medicaid does not count your primary residence as an asset in most states). These strategies are legal, but they have rules and timelines. If you give away money or transfer assets within five years of applying for Medicaid, Medicaid will penalize you by delaying coverage. This is called the "look-back period."
If you think you might eventually need Medicaid to cover long-term care, talk to an elder law attorney in your state when you are in your 50s or early 60s. They can review your specific situation and tell you whether any planning makes sense for you. This costs a few hundred dollars for a consultation, but it can save tens of thousands in care costs later.
Frequently Asked Questions
What is the difference between long-term care insurance and disability insurance?
Disability insurance replaces your income if you cannot work due to illness or injury — it is designed for people still in their working years. Long-term care insurance pays for help with daily activities (bathing, dressing, eating) when you are older and cannot do these things yourself. They cover different risks and are purchased at different life stages.
Can I buy long-term care insurance if I already have a health condition?
It depends on the condition and the insurer. Some conditions (well-controlled diabetes, high blood pressure) do not automatically disqualify you. Others (dementia, Parkinson's disease, recent cancer) may make you uninsurable or cause the insurer to charge much higher premiums. The only way to know is to apply or get a quote. Applying does not obligate you to buy.
If I move to a different state in retirement, does my long-term care insurance still work?
Yes. Long-term care insurance is portable — you can use it in any state. However, the benefit amount you chose may not cover the full cost of care in a more expensive state. If you move from a low-cost state to a high-cost one, your policy might cover 60 percent of care costs instead of 80 percent. Review your coverage if you are planning a major move.
What happens to my caregiving plan if I get divorced or widowed?
Your caregiving needs and your ability to pay for care both change. If you were counting on a spouse's income or assets to cover care costs, you need a new plan. If you were planning for your spouse to be your caregiver, you need to think about paid care instead. Review your long-term care insurance, your savings, and your Medicaid strategy with a financial advisor or elder law attorney after a major life change.
Can I use my life insurance death benefit to pay for long-term care?
Not directly — life insurance pays out only after you die. However, some life insurance policies include a long-term care rider that lets you access part of the death benefit while you are alive if you need long-term care. This is called a "living benefit." Ask your insurance agent whether your current policy has this option or whether you can add it.