Quick Answer
Long-term care costs can affect a retirement plan by creating a significant new expense later in life—often at the same time employment income is no longer available.
If care must be paid from retirement accounts, investments, savings, or other assets, it can change how quickly your money is withdrawn, how long your portfolio may last, your tax situation, the income available to a spouse, and the amount you may ultimately leave to your family.
That is why I believe long-term care should not be treated as a separate healthcare issue. It should be considered as part of your overall retirement plan.
Long-Term Care Is a Retirement Planning Issue
When most people picture retirement, they think about the life they hope to enjoy.
Travel.
Time with family.
Hobbies.
A comfortable home.
More freedom over how they spend their days.
Those are important goals, and they absolutely deserve a place in your retirement plan.
But a good retirement plan also needs to consider what could change along the way.
One of those possibilities is a future need for long-term care.
You may never require extensive care. But if you do, the financial impact can reach far beyond the cost of a caregiver or facility.
It can affect the entire retirement strategy you’ve worked years to build.
Why Long-Term Care Can Change an Otherwise Strong Retirement Plan
Imagine entering retirement with a carefully planned budget.
You’ve determined how much you need each month.
You know when you plan to claim Social Security.
You have a strategy for withdrawing money from retirement accounts.
Your investments are structured around your goals.
Everything appears to work.
Then, several years into retirement, you or your spouse needs ongoing care.
Suddenly, your monthly expenses are no longer what you originally projected.
The retirement plan now has to support your existing lifestyle plus the additional cost of care.
That’s the risk I want retirees to understand.
A plan can look sustainable under normal circumstances while becoming much more strained when a large new expense is introduced.
Where Will the Money for Long-Term Care Come From?
This is one of the first questions I believe every long-term care conversation should address.
If you eventually need care, what resources would you use to pay for it?
Depending on your situation, those resources might include:
- Cash savings
- Retirement accounts
- Brokerage accounts
- Retirement income
- Insurance benefits
- Home equity
- Other assets
- Family resources
- A combination of several sources
There isn’t one correct answer for everyone.
What matters is that you have considered the question before the money is needed.
Without a strategy, families may simply begin withdrawing money from whichever account seems easiest to access.
That may solve the immediate expense without considering how those withdrawals affect the rest of the retirement plan.
Long-Term Care Can Accelerate Retirement Withdrawals
One of the biggest concerns is the withdrawal rate from your retirement assets.
Your portfolio may have been designed to provide income over a retirement lasting 20, 25, 30 years or longer.
If a significant care expense suddenly requires additional withdrawals, the assumptions behind that strategy can change.
For example, money that was expected to remain invested for another decade may need to be accessed earlier.
That means fewer assets remain available to potentially support future income.
And if care lasts for several years, the cumulative effect can become much more significant.
This connects directly with one of the most common questions I receive from retirees: How Much Can You Safely Spend in Retirement Without Running Out of Money?
The answer depends not only on what you spend during a normal year, but also on whether your plan can adapt when expenses unexpectedly increase.
The Timing of Long-Term Care Expenses Matters
When an expense occurs can be almost as important as how large it is.
Imagine needing substantial care during a period when the financial markets are also declining.
If you’re forced to withdraw significantly more money from investments while those investments have fallen in value, the long-term impact can be different from taking those withdrawals during stronger market conditions.
This is one reason retirement planning requires more than selecting investments and hoping for an average return.
Your plan needs flexibility.
I’ve discussed this broader issue in What Happens to Your Retirement Plan When the Market Drops?.
A future care expense is another reason having a coordinated retirement-income strategy matters.
Long-Term Care Can Affect Your Taxes
Where the money comes from can also matter.
Not all retirement assets are taxed the same way.
If additional care expenses require you to take larger distributions from tax-deferred retirement accounts, those withdrawals may affect taxable income depending on your circumstances.
That’s why I don’t like viewing a retirement account simply as a bucket of money.
The account type matters.
The timing of withdrawals matters.
Your other income matters.
And the sequence in which you use different resources may matter.
I’ve written more about this in What Is the Best Order for Withdrawing Retirement Accounts?.
Long-term care expenses add another variable to that withdrawal strategy.
Long-Term Care Can Affect the Healthy Spouse
For married couples, this may be one of the most important considerations.
Suppose one spouse needs substantial care while the other remains healthy and independent.
The healthy spouse still needs income.
They still need somewhere to live.
They still have food, transportation, healthcare, taxes, insurance, utilities, and everyday expenses.
At the same time, a significant portion of the couple’s resources may now be needed to support the other spouse’s care.
This creates an important planning question:
How do we provide the necessary care without jeopardizing the financial security of the healthy spouse?
That question should be considered before a crisis occurs.
Long-term care planning isn’t only about the person who might eventually need care.
It can also be about protecting the person they love.
Your Housing Plans May Change
Housing is another part of retirement that can be affected.
You may expect to remain in your San Diego home throughout retirement.
But what happens if the home eventually needs modifications?
What if you need regular in-home assistance?
What if remaining home becomes impractical?
Or what if one spouse moves into a care community while the other stays in the family home?
Each scenario can have different financial consequences.
This is why I encourage clients to think beyond a simple question such as:
“Can I afford my house in retirement?”
A better question may be:
“Does my retirement plan give me enough flexibility if my housing and care needs change?”
Long-Term Care Can Affect Your Legacy
Many retirees hope to leave something behind.
That may mean leaving assets to children or grandchildren.
Supporting a charitable organization.
Leaving the family home to the next generation.
Or simply making sure a surviving spouse is financially secure.
Long-term care expenses can change those plans.
If substantial assets must be used for care, less may ultimately remain for other goals.
This does not mean you should avoid spending your own money on your own care.
It means your plan should acknowledge the tradeoffs.
If leaving a legacy is important to you, then potential care costs deserve to be part of that conversation.
Don’t Assume Medicare Will Cover the Expense
One of the most dangerous assumptions in long-term care planning is believing Medicare will simply cover the cost.
Medicare plays an important role in retirement healthcare, but it generally does not provide comprehensive coverage for ongoing custodial long-term care.
That means retirees may still be responsible for substantial care expenses.
I explain this distinction in Does Medicare Pay for Long-Term Care? What Retirees Need to Know.
Understanding what Medicare may and may not cover can help you avoid building your retirement plan around an assumption that may not hold true.
How Much Could Long-Term Care Cost?
There isn’t one number that applies to everyone.
The financial impact depends on factors such as:
- The type of care required
- How many hours of assistance are needed
- Whether care is provided at home or in a facility
- Whether memory care is required
- How long care lasts
- Where you live
- Your insurance coverage
- Your other financial resources
For San Diego families, local costs can also differ from national averages.
That’s why I wrote How Much Does Long-Term Care Cost in San Diego?.
But the bigger retirement-planning question isn’t simply:
“How much does care cost?”
It’s:
“What happens to my financial plan if I have to pay that cost?”
Can You Self-Fund Long-Term Care?
Some retirees with substantial assets may decide they have enough financial resources to pay for care themselves.
That may be a reasonable strategy in some circumstances.
But being able to afford something doesn’t automatically mean you have a plan for it.
If you’re considering self-funding, questions may include:
Which assets would you use first?
How much liquidity would you maintain?
Would you sell assets?
Would you use retirement accounts?
What happens during a market downturn?
How would additional withdrawals affect taxes?
How much should remain protected for a spouse?
What happens to your estate goals?
The important point is that self-funding should still be a strategy, not simply the absence of one.
What Role Can Long-Term Care Insurance Play?
Insurance may be another potential tool.
Depending on individual circumstances, a long-term care insurance strategy may help transfer some of the financial risk associated with future care.
But insurance isn’t automatically right for everyone.
Age, health, premiums, benefits, financial resources, and personal priorities can all influence the decision.
That’s why I prefer to look at insurance within the larger financial plan rather than treating it as the entire solution.
For some families, insurance may play an important role.
Others may choose to self-fund.
Still others may use a combination of resources.
The appropriate strategy depends on the individual.
At What Age Should You Start Planning?
Ideally, before care is needed.
For many people, their 50s and early 60s can be an especially useful period to begin thinking seriously about long-term care because retirement itself is becoming more tangible.
But there isn’t one perfect age.
What’s more important is not waiting until a health crisis forces the conversation.
I’ve covered this question in more detail in At What Age Should You Start Planning for Long-Term Care?.
Planning earlier gives you time to understand your choices.
Long-Term Care Planning Should Be Connected to Retirement Income Planning
This is one of the most important points I want readers to take away.
Long-term care planning and retirement income planning should not operate independently.
Your retirement assets ultimately have a job:
They need to help support your life.
And your financial needs may change dramatically over a retirement lasting several decades.
That’s why a thoughtful retirement income planning strategy should consider more than the income you need during your first year of retirement.
It should also consider how your needs could evolve later.
Build Flexibility Into Your Retirement Plan
We can’t predict everything that will happen during retirement.
That’s not the purpose of financial planning.
Instead, I believe the goal is to create enough structure and flexibility that your financial life can adapt when circumstances change.
That may mean maintaining appropriate liquidity.
Diversifying your income sources.
Considering how different accounts will be used.
Evaluating insurance.
Preparing for inflation.
Thinking about healthcare.
And discussing potential long-term care.
A comprehensive retirement planning strategy in San Diego should bring these pieces together rather than treating them as unrelated decisions.
Long-Term Care Planning Is Also Family Planning
A future care need rarely affects just one person.
Spouses may become caregivers.
Adult children may help coordinate care.
Family members may need to make medical or financial decisions.
Someone may need to manage the household.
And disagreements can arise when nobody knows what Mom or Dad actually wanted.
That’s why I encourage families to discuss these issues before they become urgent.
My article How Long-Term Care Affects Families goes deeper into this side of the planning process.
Financial preparation cannot eliminate the emotional challenges associated with care.
But it can reduce some of the financial uncertainty surrounding those decisions.
Working With a Fiduciary Financial Advisor
Long-term care is a good example of why financial planning needs to look beyond investments.
A decision about care can affect your income strategy, taxes, portfolio, spouse, housing, insurance, estate, and family.
As a fiduciary financial advisor in San Diego, I help clients look at these decisions together.
The objective isn’t to predict whether you will need long-term care.
It’s to understand how your financial plan could respond if you do.
Recommended Reading: Retirement By Design
I wrote Retirement By Design: How To Avoid Running Out of Money and Create the Income You Need, To Live the Way You Want! because retirement planning is ultimately about creating sustainable income for your life—not simply accumulating an account balance.
Long-term care is a perfect example of why that distinction matters.
Your financial needs can change over time.
Your plan should be prepared to change with them.
Learn more about Retirement By Design.
Your Retirement Plan Should Be Prepared for More Than the Retirement You Expect
Nobody knows exactly what their retirement will look like 10, 20, or 30 years from now.
You may remain healthy and independent for the rest of your life.
You may need some assistance at home.
Or you or your spouse may eventually require more extensive care.
The goal isn’t to assume the worst.
It’s to make sure one unexpected chapter doesn’t unravel everything you’ve built.
Long-term care planning gives you an opportunity to ask:
If I need care someday, will my retirement plan be ready?
That’s a question worth answering before the need arises.
Let’s Talk
If you are approaching retirement and wondering how potential long-term care expenses could affect your financial future, I would be happy to help you look at the bigger picture.
If you are exploring what it looks like to work with a San Diego fiduciary advisor, I invite you to schedule a complimentary consultation.
Elisabeth Dawson
619-640-2622
San Diego, CA 92108
FAQs
How can long-term care affect my retirement savings?
Long-term care can require additional withdrawals from savings, portfolio assets, or retirement accounts. If care lasts for an extended period, those withdrawals may reduce the assets available to generate income throughout the remainder of retirement.
Should long-term care be included in a retirement plan?
Yes, potential long-term care expenses are worth considering because they can affect retirement income, portfolio, taxes, housing, a spouse’s financial security, and estate goals.
Can long-term care cause you to run out of money in retirement?
Significant or prolonged care expenses can place additional pressure on retirement assets. The actual impact depends on your savings, income, insurance, portfolio, care needs, and how long care is required.
Can I use my 401(k) or IRA to pay for long-term care?
Retirement assets can potentially be used to pay expenses, but withdrawals may have tax and long-term financial consequences depending on the account and your circumstances. How different assets are used should be considered within your overall retirement strategy.
Can I self-fund long-term care?
Some people with sufficient financial resources may choose to self-fund potential care expenses. A self-funding strategy should still consider liquidity, taxes, portfolio, retirement income, the financial needs of a spouse, and estate goals.
Does Medicare cover long-term care expenses?
Medicare generally does not provide comprehensive coverage for ongoing custodial long-term care, although certain qualifying skilled nursing and home health services may be covered under specific circumstances.
How can I protect my spouse if I need long-term care?
Planning may involve evaluating retirement income, available assets, insurance, housing, liquidity, and how resources would be allocated if one spouse requires care. The goal is to prepare for care while considering the healthy spouse’s ongoing financial needs.