Long-term care planning: the expense nobody budgets for

By Tom, CPA · Updated October 25, 2026

TL;DR: Federal data say someone turning 65 has almost a 70% chance of needing some long-term care, averaging about three years. Options are self-insuring, traditional LTC insurance, hybrid life/LTC policies, or relying on Medicaid. For 2026, deductible LTC premium limits range from $500 to $6,200 by age.

Educational only, not tax, legal, or investment advice. Examples are illustrations, not predictions. Rules and limits change; verify current figures and talk to a qualified professional about your situation.

The expense nobody budgets for and everybody hopes to avoid. Long-term care means help with everyday activities like bathing, dressing or eating, often because of chronic illness, injury or dementia. It's usually not medical care, which is why Medicare generally doesn't pay for it except in limited, short-term skilled situations.

For early retirees with long horizons, long-term care is the tail risk that can dent even a well-built portfolio. This guide covers the odds, the main funding choices, the tax rules and the Medicaid look-back, without pretending there's one right answer.

CPA Warning Label: Medicare isn't a long-term care plan. Neither is hoping. One of those is a common assumption; the other is a strategy many people use without noticing.

What LTC costs (sourced)

Start with likelihood and duration, from the federal Administration for Community Living's LongTermCare.gov:

• Someone turning 65 today has almost a 70% chance of needing some type of long-term care services and supports.
• Women need care longer on average (3.7 years) than men (2.2 years).
• About one-third of 65-year-olds may never need long-term care, but 20% will need it for more than five years.
• More care happens at home than in facilities: 65% use some care at home, averaging two years; 37% use facility care, averaging one year.

Prices vary enormously by region and setting, and published survey figures change every year, so we don't quote a national price here. Get local quotes: call two or three home care agencies, assisted living communities and nursing facilities near where you'll likely live, and ask for daily or monthly rates. That's the number to plan with.

CMS data show national health spending per person for people 65 and older was about $22,356 in 2020, well above the overall average, and long-term services are a large part of that spending for older adults.

Self-insuring

Self-insuring means setting aside assets you can use for care if needed. It works best for households with large portfolios where even several years of care wouldn't threaten the healthy spouse's lifestyle.

Illustration: a couple with $2.5 million plans to spend $90,000 a year. They assume, for planning, a five-year care need for one spouse at $120,000 a year in today's dollars, starting at 85. They earmark a portion of their portfolio, often home equity plus a dedicated bond allocation, as a care reserve. If care is never needed, the reserve becomes an inheritance or late-life cushion.

Self-insuring pitfalls: underestimating duration, ignoring the healthy spouse's ongoing expenses, and assuming home equity is easy to tap when someone still lives there.

Traditional vs hybrid policies

Traditional LTC insurance pays a daily or monthly benefit for qualifying care, after an elimination period, for a set benefit period or pool of money. Premiums are typically lower than hybrids for the same benefit, but they aren't guaranteed; insurers can raise premiums for a whole class of policyholders with regulator approval, and many have. If you never need care, you get nothing back.

Hybrid policies combine life insurance or an annuity with an LTC rider. You typically pay a lump sum or a set number of premiums. If you need care, the policy pays benefits; if not, a death benefit goes to heirs. Premiums are often guaranteed, but you pay more upfront for the same care benefit.

Both usually require health underwriting, so buying in your 50s or early 60s, when you're more likely to qualify, is common.

Tax deductibility limits

Premiums for qualified long-term care insurance count as medical expenses up to an age-based limit. For 2026, IRS Revenue Procedure 2025-32 sets these limits per person:

Medical expenses are only deductible as itemized deductions above 7.5% of AGI, so many retirees get no benefit. Self-employed people may deduct eligible premiums as part of the self-employed health insurance deduction, and HSA funds can pay qualified LTC premiums up to these limits tax-free. Per diem LTC benefits are generally excludable up to $430 a day for 2026 (more if actual costs are higher).

Medicaid lookback

Medicaid is the largest payer of long-term care in the U.S., but eligibility for long-term care Medicaid typically has strict income and asset limits, which vary by state. To prevent people from giving away assets to qualify, Medicaid uses a look-back period. Under the Deficit Reduction Act of 2005, CMS says the look-back for asset transfers is 60 months. Transfers for less than fair value during that window can trigger a penalty period of ineligibility, generally calculated by dividing the amount transferred by the average monthly cost of nursing facility care in the state.

Illustration: if a state's average monthly nursing facility cost is assumed to be $10,000, a $100,000 gift within the look-back could mean about 10 months of ineligibility.

Medicaid planning is state-specific and legally technical. It's an area where an elder law attorney is worth consulting before acting. See estate planning basics.

Building a plan

1. Decide your primary approach: self-insure, insure, or a mix.
2. Get local cost quotes for home care and facility care.
3. If insuring, compare traditional and hybrid quotes at the same benefit levels, with and without inflation protection.
4. Decide which assets would fund care and document it for your spouse or agent.
5. Set up powers of attorney and health care directives.
6. Revisit every five years or after a health change.

Where Medicare fits

Medicare generally covers skilled nursing facility care only after a qualifying hospital stay and only for a limited time; for 2026, days 21 to 100 have coinsurance of $217 a day. It doesn't cover custodial care, the help with daily activities that makes up most long-term care. See Medicare Advantage vs Medigap.

Inflation protection and benefit design

Care costs tend to rise faster than general inflation, and an early retiree buying coverage at 55 might not claim until 85. A policy that pays a fixed $150 a day may cover far less care in 30 years. Many policies offer compound inflation riders, typically at a few percent a year, which raise premiums but keep benefits meaningful. Other design choices that change price and value:

• Elimination period: the waiting period before benefits start, often 90 days. Longer periods lower premiums but mean more self-funding.
• Benefit period or pool: two to five years of benefits is common; unlimited lifetime benefits are now rare and expensive.
• Shared care for couples: lets spouses draw from a combined pool, useful if one spouse needs much more care than the other.
• Home care coverage: given that most care happens at home, make sure the policy pays for it, not just facility care.

Family conversations

Most long-term care is still provided by unpaid family members, and LongTermCare.gov's data show unpaid care at home is the most common type. That care has real costs: lost income, health strain, and sometimes conflict. Talk with your spouse and adult children about preferences now, while it's hypothetical. Where would you want to live? Who would coordinate? What would you want spent? A written plan beats a crisis meeting in a hospital hallway.