The Most Overlooked Risk in Retirement

By Peter Mastrantuono

Of all the risks Americans face in retirement—stock market declines, inflation, longevity—perhaps the least appreciated risk is long-term care. It is estimated that over half of all individuals age 65 and older will, at some point in retirement, need long-term care services, with one in seven adults needing care for five years or longer, according to the U.S. Department of Health and Human Services.

Yet, despite the high probability of needing long-term care, AARP estimates that only 7.2 million Americans have insurance to cover these expenses, which may run $140,000 or more.

This planning gap exists for two primary reasons: 1) the mistaken belief that Medicare covers long-term care costs, and 2) the high cost of LTC insurance.

Long-term care services provide assistance with the basic personal tasks of everyday living, including bathing, dressing, eating, using the toilet, transferring to and from bed and caring for incontinence; otherwise known as Activities of Daily Living. Other instrumental, but less essential tasks, such as housework, taking medication, shopping and managing money, may also be included.

Medicare, which covers medically necessary care (e.g., doctor visits or hospital stays) does not generally cover expenses associated with custodial care, nursing homes or assisted living facilities, except under a very narrow set of circumstances and for a limited period of time.

An individual, for instance, may suffer an illness or injury that requires specialized nursing care and rehabilitation—services that are usually provided by nursing homes. Medicare will cover an individual’s stay at a skilled nursing facility, provided he or she had a hospital admission with an inpatient stay of at least three days, is admitted to a Medicare-certified skilled nursing facility within 30 days of that hospital stay and skilled care, such as nursing, physical therapy or other type of therapy, is needed.

In these cases, Original Medicare (as opposed to Medicare Advantage) pays 100 percent of the cost for the first 20 days. From days 21 through 100, the patient pays a daily copayment ($170.50 in 2019), with Medicare paying the balance. After 100 days, Medicare coverage ends.

For elderly Americans who meet very strict income and asset qualification limits, Medicaid will pay for a nursing home, making this public assistance program an option for retirees with few assets. For individuals looking to protect retirement savings and preserve assets for their heirs, there are three basic approaches to funding future long-term care expenses.

Traditional Long-Term Care Insurance: Policies have improved, though they remain expensive, with many individuals balking at the idea of paying years of premiums for something they may never need.

Hybrid Policies: New hybrid insurance products combine the traditional features of a life policy or annuity with a long-term care rider, providing long-term care coverage, while offering death benefits to heirs.

Self-Funding: Individuals can fund a dedicated pool of savings to cover any future long-term care costs. While this option has the advantage of preserving wealth for heirs, it does run the risk that savings prove insufficient.

The best approach depends on each individual’s financial circumstances and personal preference for the trade-offs of each approach. Individuals should work with an experienced financial advisor to best understand the relative advantages and disadvantages of each option within the context of their overall retirement plan.

Peter Mastrantuono is a contributing writer to, the premier matchmaker between investors and advisors. Peter worked for over 30 years in the wealth management industry, focusing on retirement planning, investing, asset allocation and financial planning.

Leave a Reply