5 Ways to Pay for Long-Term Care Without Derailing Retirement

Retirement planning often focuses on savings, investments, and creating a dependable income stream. However, one significant expense can change even the most carefully prepared financial plan: long-term care.

Understanding the different ways to pay for long-term care can help individuals and families prepare for future healthcare needs without unnecessarily compromising their retirement security.

Whether care takes place at home, in an assisted living community, or in a nursing facility, expenses can accumulate quickly. Additionally, the type and duration of care can significantly affect the total cost.

Fortunately, several funding strategies are available. The key is understanding how each works and determining which combination fits your financial circumstances.

Quick Answer: What Are the Five Ways to Pay for Long-Term Care?

Five common ways to pay for long-term care include:

1. Personal savings and investments: Using retirement savings, investment income, or other available assets to cover care expenses.

2. Long-term care insurance: Purchasing coverage designed to help pay for qualifying care services.

3. Medicaid: Accessing government assistance for eligible individuals who meet financial and care requirements.

4. VA Aid and Attendance benefits: Receiving additional pension benefits for qualifying veterans and surviving spouses who need assistance.

5. Home equity: Using available home equity, potentially through a reverse mortgage, to help fund care.

Many households ultimately rely on a combination of these resources rather than a single funding source.

Why Planning for Long-Term Care Matters

Long-term care generally refers to ongoing assistance with everyday activities or supervision related to physical or cognitive limitations.

These services may become necessary because of aging, chronic illness, disability, or changes in cognitive health.

Common types of care include:

• In-home personal care assistance

• Adult day care programs

• Assisted living services

• Memory care

• Nursing home care

• Support with bathing, dressing, eating, or mobility

Unlike routine medical treatment, long-term care often focuses on helping individuals manage daily activities safely.

As a result, traditional health insurance and Medicare may not cover many ongoing custodial care expenses.

According to Medicare.gov, Medicare generally does not pay for long-term custodial care when that is the only care someone needs.

Therefore, planning ahead can help reduce the financial uncertainty associated with extended care needs.

1. Pay for Long-Term Care Using Savings and Investments

One approach involves paying for care directly from personal assets.

This strategy, often called self-funding, uses available savings, retirement accounts, or investment income to cover expenses as they arise.

For individuals with substantial financial resources, self-funding may provide flexibility without requiring an insurance policy.

However, it also means assuming responsibility for the full cost of care.

Potential funding sources include:

• Savings and money market accounts

• Taxable brokerage accounts

• Retirement account withdrawals

• Investment income

• Other accessible financial assets

Before choosing this approach, consider how prolonged care expenses could affect your retirement income.

For example, withdrawing significant amounts from investment accounts during a market downturn may require selling assets at unfavorable prices.

Additionally, distributions from traditional retirement accounts may increase taxable income.

Consequently, self-funding requires more than simply having enough money available today.

A thoughtful strategy should consider how care expenses might affect your assets over several years.

Questions to consider:

• Could your savings support multiple years of care?

• Would large withdrawals disrupt your retirement income?

• How would care expenses affect your spouse’s financial security?

• Have you accounted for potential increases in future care costs?

Self-funding can be appropriate for some households, but it requires a realistic assessment of financial risk.

2. Use Long-Term Care Insurance to Help Manage Expenses

Long-term care insurance is designed to help cover qualifying care services when an insured individual meets the policy’s benefit requirements.

Depending on the contract, coverage may help pay for care at home, in assisted living, or in a nursing facility.

There are two broad approaches worth understanding.

Traditional Long-Term Care Insurance

Traditional policies generally provide benefits specifically for qualifying long-term care expenses.

Coverage features vary, but policies commonly include a maximum benefit amount, benefit period, and elimination period.

An elimination period is the period during which qualifying care expenses must be incurred or other contractual requirements satisfied before benefits become payable.

Premiums may also increase over time, depending on the policy and insurer.

Hybrid Life Insurance or Annuity Policies

Hybrid policies combine long-term care benefits with life insurance or annuity features.

Depending on the product, these arrangements may provide a death benefit, annuity value, or other contractual benefits if long-term care coverage is never used.

However, hybrid products differ considerably in cost, benefit structure, eligibility requirements, and available guarantees.

Therefore, comparing policy illustrations and contract provisions is essential.

Questions to consider:

• What care services does the policy cover?

• How much does it pay each month?

• How long can benefits continue?

• Does the policy include inflation protection?

• What happens if you never need long-term care?

• Can premiums increase?

• What medical underwriting requirements apply?

Long-term care insurance can help transfer some financial risk to an insurer. However, coverage is subject to policy terms, exclusions, limitations, and claims requirements.

3. Explore Medicaid for Long-Term Care Assistance

Medicaid is another potential source of long-term care funding for individuals who meet applicable eligibility requirements.

Unlike Medicare, Medicaid may cover qualifying long-term services and supports, including nursing facility care and certain home- and community-based services.

However, Medicaid eligibility depends on several factors.

These commonly include:

• Income

• Countable assets

• Medical or functional care needs

• State-specific program requirements

Because Medicaid is administered jointly by federal and state governments, eligibility rules and covered services vary by state.

Additionally, some applicants may need to spend down countable assets before qualifying.

Understanding Medicaid Asset Protection Planning

Certain families explore legal strategies intended to preserve assets while preparing for possible Medicaid eligibility.

For example, an elder law attorney may discuss whether an appropriately structured irrevocable trust fits a family’s circumstances.

However, transferring assets into a trust does not automatically protect them or establish Medicaid eligibility.

Federal Medicaid rules generally impose a five-year look-back period for certain asset transfers involving long-term care eligibility. Transfers during this period may result in a penalty.

Moreover, the treatment of trusts, homes, income, and other assets can be complex.

Therefore, Medicaid planning should involve a qualified elder law attorney familiar with the applicable state rules.

For additional information, visit Medicaid.gov.

Questions to consider:

• What are your state’s Medicaid eligibility requirements?

• Which assets may be excluded from eligibility calculations?

• How might Medicaid planning affect your spouse?

• Are you planning early enough to evaluate potential options?

• Could asset transfers affect future eligibility?

Early planning may provide more flexibility than waiting until care becomes necessary.

4. Consider VA Aid and Attendance Benefits

Veterans and surviving spouses may have access to additional financial assistance through the Department of Veterans Affairs.

One important program is the VA Aid and Attendance benefit.

Aid and Attendance is an increased monthly VA pension amount available to certain eligible veterans and surviving spouses who need assistance with daily activities or meet other qualifying conditions.

Depending on eligibility, these funds may help offset expenses associated with:

• In-home assistance

• Assisted living

• Memory care

• Nursing home care

• Other qualifying care needs

However, Aid and Attendance is not available to every veteran.

Eligibility generally depends on qualifying military service, pension eligibility, financial circumstances, and care-related requirements.

The VA also considers income, assets, and certain medical expenses when determining eligibility and benefit amounts.

For example, unreimbursed medical expenses may reduce countable income under applicable VA rules.

Questions to consider:

• Did you or your spouse have qualifying military service?

• Do you need assistance with daily activities?

• Have you reviewed current VA pension income and net worth requirements?

• Could eligible medical expenses affect your benefit calculation?

• Do you have military service records available?

Because VA pension limits and benefit amounts can change, it’s important to review current information before making financial decisions.

Learn more through the VA Aid and Attendance benefits page.

For qualifying families, these benefits may provide an additional resource when evaluating ways to pay for long-term care.

5. Use Home Equity to Help Fund Care

For many retirees, their home represents a significant portion of their overall wealth.

Consequently, home equity may become part of a long-term care funding strategy.

One option involves a reverse mortgage.

A reverse mortgage allows eligible homeowners to convert a portion of their home equity into available funds without making required monthly principal and interest payments while the loan remains in good standing.

The most common federally insured reverse mortgage is the Home Equity Conversion Mortgage, or HECM.

HECM loans generally require borrowers to be at least 62 years old and meet other eligibility conditions.

Depending on the arrangement, funds may be available through a line of credit, monthly payments, a lump sum, or a combination of options.

These proceeds may help pay for in-home care or other retirement expenses.

However, reverse mortgages involve important financial considerations.

Potential benefits include:

• Accessing home equity without immediately selling the property

• Supplementing available retirement funds

• Helping cover qualifying care expenses at home

• Creating additional financial flexibility

Important considerations include:

• Interest and fees increase the loan balance over time.

• Homeowners remain responsible for property taxes, insurance, and maintenance.

• Available home equity may decrease.

• The loan may become due when certain conditions occur, including when the home is no longer the borrower’s principal residence.

• A prolonged move into a care facility may affect the loan’s repayment requirements.

• Non-borrowing spouses may face additional considerations and protections depending on eligibility and loan terms.

Therefore, reverse mortgages should be evaluated carefully alongside other funding options.

For more information, visit the Consumer Financial Protection Bureau’s reverse mortgage resources.

How to Choose the Right Long-Term Care Funding Strategy

There is no single approach that works for every household.

In fact, many comprehensive plans combine multiple ways to pay for long-term care.

For example, one retiree may use insurance benefits to cover part of their care expenses while relying on personal savings for remaining costs.

Another household may prefer to self-fund certain expenses while preserving home equity as an additional financial resource.

Meanwhile, qualifying veterans may incorporate VA benefits into their overall strategy.

When evaluating your options, consider five important factors.

1. Your Retirement Income

Determine how much income you need for essential living expenses before allocating resources toward potential care costs.

2. Your Available Assets

Review savings, investments, retirement accounts, insurance coverage, and home equity.

3. Your Health and Family History

Although future care needs cannot be predicted precisely, your circumstances may influence the types of care you want to prepare for.

4. Your Family Responsibilities

Consider how care expenses could affect a spouse, dependent family member, or intended inheritance.

5. Your Risk Tolerance

Decide how much financial uncertainty you’re comfortable accepting versus transferring through insurance or other arrangements.

Together, these considerations can help you identify a strategy that supports both your care preferences and financial security.

Why Long-Term Care Planning Should Start Before Retirement

Many people delay long-term care planning because they feel healthy or believe they have plenty of time.

However, waiting can reduce available options.

For example, traditional and hybrid insurance products may require medical underwriting. As health circumstances change, obtaining coverage may become more difficult or expensive.

Likewise, Medicaid-related planning strategies can involve legal restrictions and waiting periods.

Therefore, exploring your options before a care need arises may provide greater flexibility.

Early planning also allows families to discuss preferences for where care should take place.

Some individuals strongly prefer remaining at home, while others want to evaluate assisted living or continuing care communities.

Understanding these preferences can help shape a realistic financial strategy.

Protecting Your Spouse and Financial Legacy

Long-term care planning is about more than paying medical or caregiving expenses.

It’s also about considering how those expenses may affect the people who depend on you.

For married couples, an extended care need could significantly change household cash flow.

One spouse may require substantial assistance while the other continues to pay ordinary living expenses.

As a result, a comprehensive plan should consider both individuals’ financial needs.

Additionally, families may want to evaluate how care expenses could affect their estate and legacy goals.

For example, relying entirely on investment assets could reduce the amount ultimately available to heirs.

Alternatively, insurance coverage may help offset some qualifying expenses, although benefits and costs vary by policy.

The goal is not necessarily to preserve every dollar.

Instead, it’s to create a plan that balances quality care, financial stability, and personal priorities.

How Holland Strategic Wealth Advisors Can Help

At Holland Strategic Wealth Advisors, we understand that long-term care planning is an important part of preparing for retirement.

A comprehensive financial strategy should consider potential healthcare expenses alongside retirement income, investment management, insurance needs, and estate planning goals.

Our approach focuses on helping individuals and families understand their options and evaluate how different funding strategies may affect their broader financial picture.

Whether you’re exploring long-term care insurance, reviewing retirement assets, or considering how future care expenses could affect your family, thoughtful planning can help you make informed decisions.

Additionally, coordinating with qualified insurance, legal, and tax professionals can help address the more specialized aspects of your strategy.

For additional retirement planning insights, explore the Holland Strategic Wealth Advisors blog.

Plan Today for Greater Confidence Tomorrow

Long-term care expenses can create financial challenges, particularly when families haven’t prepared for the possibility of extended assistance.

However, understanding the available funding options can make the planning process more manageable.

From personal savings and insurance to Medicaid, VA benefits, and home equity, several ways to pay for long-term care may be worth considering.

The right approach depends on your financial resources, family circumstances, health considerations, and long-term goals.

Most importantly, planning before care becomes necessary can help preserve flexibility and reduce uncertainty.

Holland Strategic Wealth Advisors can help you evaluate how potential long-term care expenses fit into your retirement strategy. Visit HSWA.money to learn more about our financial planning services.

Frequently Asked Questions About Paying for Long-Term Care

1. What is the most common way to pay for long-term care?

Families often use a combination of personal savings, retirement income, insurance benefits, and government assistance when eligible. The funding approach depends on the type of care required, available assets, and individual circumstances.

2. Does Medicare pay for long-term care?

Medicare generally does not cover ongoing custodial care when that is the only care needed. However, it may cover certain medically necessary skilled nursing or home health services when specific eligibility requirements are met.

3. Is long-term care insurance worth considering?

Long-term care insurance may be appropriate for individuals who want to transfer some potential care expenses to an insurer. However, premiums, coverage limitations, benefit periods, and eligibility requirements vary. Comparing policies and evaluating affordability are important before purchasing coverage.

4. Can Medicaid help pay for nursing home care?

Yes. Medicaid may cover qualifying nursing facility services for eligible individuals. However, applicants must meet applicable financial and medical requirements, which vary by state and program.

5. Can I use a reverse mortgage to pay for in-home care?

Eligible homeowners may use reverse mortgage proceeds to help cover in-home care or other expenses. However, these loans involve interest, fees, occupancy requirements, and repayment obligations. It’s important to understand how the arrangement may affect your home equity, spouse, and estate.

This article is provided for general educational purposes and does not constitute individualized financial, investment, insurance, legal, or tax advice. Government benefit eligibility, insurance coverage, and financial product terms vary. Consult qualified financial, legal, tax, and insurance professionals before implementing a long-term care funding strategy. Holland Strategic Wealth Advisors is not affiliated with or endorsed by Medicare, Medicaid, the Department of Veterans Affairs, or any other government agency.