Caregiving can become your largest retirement expense, and most people don't budget for it

If you retire at 65, there is roughly a 70% chance you will need some form of care — whether that's help at home, assisted living, or a nursing facility — before you die. That care costs money, sometimes a lot of it. A year in a nursing home can run $100,000 or more depending on where you live; home care aides charge $20 to $30 per hour in most places. Social Security and Medicare cover some medical costs, but neither pays for long-term care or the help you need with daily tasks like bathing, dressing, or meals.

The gap between what Medicare covers and what care actually costs is where most retirees get caught off guard. You can plan for this gap the same way you plan for any other expense: by estimating what you might need, understanding what resources already exist, and deciding whether to set money aside, buy insurance, or rely on family.

Key Takeaways

  • Long-term care — help with daily tasks, not medical treatment — is not covered by Medicare and can cost $50,000 to $150,000 per year depending on the type of care and your location.
  • You can estimate your own risk by considering your family health history, current health, and whether you have family members who can provide unpaid care.
  • Long-term care insurance, hybrid life insurance policies, and self-funding through savings are the three main ways people plan for these costs.
  • Medicaid covers long-term care for people with limited assets, but requires you to spend down your savings first and limits which facilities you can use.
  • Starting this conversation with family members now — before a crisis — makes it easier to plan and prevents conflict later.

What long-term care actually costs and what Medicare does not cover

Medicare pays for skilled nursing care — wound care, physical therapy, medication management — but only after a hospital stay and only for a limited time. It does not pay for custodial care, which is help with the activities of daily living: bathing, dressing, toileting, eating, transferring from bed to chair. That distinction matters because custodial care is what most people need as they age, and it is also what costs the most.

A home health aide working 8 hours a day costs roughly $160 to $240 per day in most U.S. markets, though rates are higher in urban areas and lower in rural ones. Assisted living facilities average $4,500 to $6,000 per month. Nursing homes average $8,000 to $12,000 per month for a semi-private room, more for a private room. These are national medians; your actual costs depend on your state and the specific facility.

The length of care is unpredictable. Some people need help for a few months after surgery or illness. Others need care for years. The average stay in a nursing home is about 2.5 years, but that average includes people who stay for weeks and people who stay for a decade. Planning means preparing for the possibility of a longer stay, not betting on the average.

Estimate your own caregiving risk based on your health and family

You cannot know whether you will need care, but you can make an educated guess by looking at your health now and your family history. People who have had a stroke, heart attack, or diagnosis of dementia, Parkinson's, or arthritis are more likely to need help with daily tasks. People whose parents or grandparents needed care are statistically more likely to need it themselves. People who live alone or whose adult children live far away may need to pay for care that someone with nearby family could receive unpaid.

This is not about predicting the future — it is about being honest about the possibility. If your parents both needed nursing home care, or if you have already had a serious illness, the odds that you will need care are higher than average. If you are in excellent health and your family has a pattern of living independently into very old age, your odds are lower. Neither scenario means you should or should not plan for care; it just changes how much you might want to set aside.

Write down your answers to these questions: Has anyone in your when ready family needed long-term care? Do you have any chronic conditions now? Do you have family members nearby who could help you if you needed it? Are you comfortable with the idea of paying for professional care, or would you prefer family care if possible? Your answers will shape which planning method makes sense for you.

Three ways to plan: insurance, self-funding, or Medicaid

Long-term care insurance is a policy you buy while you are healthy that pays a daily benefit if you need care later. A typical policy might pay $150 to $300 per day for three to five years. You pay premiums now — usually $1,500 to $3,000 per year for someone in their 50s or early 60s — and the insurance company pays the benefit when you need care. The trade-off is that you are paying for something you might never use, and premiums can increase over time.

Hybrid policies combine life insurance or an annuity with long-term care coverage. If you never need care, your beneficiaries get the death benefit or you get your money back. If you do need care, the policy pays for it. These cost more upfront but appeal to people who want to know their money is not wasted if they stay healthy.

Self-funding means setting aside money in savings or investments specifically for potential care costs. This works if you have significant assets and are comfortable with the risk that a long care stay could deplete your savings. Many people use a combination: they set aside some money and buy a limited insurance policy to cover the gap.

Medicaid is a government program that covers long-term care for people with limited income and assets. You do not pay premiums; instead, Medicaid pays for care once you have spent down your savings to a certain level (usually $2,000 to $3,000 depending on your state). The catch is that Medicaid does not cover all facilities — many nursing homes do not accept Medicaid patients — and you have no choice about where you receive care. Medicaid is a safety net, not a plan, but it is important to know it exists.

How to talk to family members about caregiving before you need it

The time to discuss caregiving is now, not when someone is in the hospital. These conversations are uncomfortable, but they prevent much larger conflicts later. You need to know: If you needed help, who would you want to provide it? Would family members be willing and able to do that? If not, are you comfortable with paid care? How much money do you have set aside, and who knows where it is?

Start with your spouse or partner if you have one. Then talk to your adult children, if you have them, or to whoever you have named as your power of attorney or healthcare proxy. You do not need to share every detail of your finances, but they should know whether you have long-term care insurance, whether you have set money aside, and what your preferences are if you become unable to make decisions.

Put your wishes in writing. A document called a long-term care directive or care plan states where you want to receive care, what type of care you prefer, and who should make decisions if you cannot. This is separate from your will and your healthcare proxy, though it works alongside them. Your doctor, your family, and your financial advisor should all have a copy.

Medicaid planning and protecting assets if you might need care

If you think you might need long-term care and you do not have much money, Medicaid is likely to be part of your plan. Medicaid has strict rules about how much you can own and still be may be able to access, and those rules vary by state. In most states, you can own your home and a car, but your other assets must be below a threshold — usually $2,000 to $3,000 for a single person.

Some people try to give away money to family members to get below that threshold faster. This is legal, but Medicaid has a "look-back" period — usually five years — during which it examines gifts you made. If you gave away money during the look-back period, Medicaid will penalize you by delaying your coverage. The penalty period is calculated based on how much you gave away and your state's average cost of nursing home care.

If you think Medicaid might be part of your future, talk to an elder law attorney before you give away money or restructure your assets. They can tell you what is legal in your state and help you plan in a way that does not trigger penalties. This is not tax information and not financial information — it is legal information about a specific government program, and it is worth paying for.

Reviewing your retirement plan to include caregiving costs

When you build a retirement budget, most people account for housing, food, healthcare, and travel. Caregiving costs should be a separate line item. Start by estimating a range: if you need care for one year, what would it cost? For three years? For five years? You do not need an exact number — a range is enough.

Then look at your retirement income sources: Social Security, pensions, investment accounts, part-time work. Ask yourself: if I needed $100,000 per year for care, could my income cover it? If not, how much would I need to draw from savings? How long would my savings last? This is the same math you do for any other expense, but most people skip it for caregiving because it feels uncertain.

Uncertainty is not a reason to skip it. You do not know if you will need care, but you know it is possible. Building a plan that accounts for that possibility — even a rough one — is better than hoping it does not happen and scrambling if it does.

Frequently Asked Questions

Does Medicare cover nursing home care?

Medicare covers skilled nursing care — medical treatment and rehabilitation — but only after a hospital stay and only for up to 100 days. It does not cover custodial care, which is help with daily tasks like bathing and dressing. That is what most people need as they age, and that is what costs the most.

What is the difference between assisted living and a nursing home?

Assisted living provides help with daily tasks and meals in a residential setting, but not medical care. A nursing home provides both daily care and medical care, including medication management and wound care. Assisted living is usually cheaper and less restrictive, but it is not appropriate if you need significant medical support.

Can I buy long-term care insurance if I already have a health condition?

It depends on the condition and the insurance company. Some companies will not sell to people with certain diagnoses; others will sell at a higher premium. If you have been diagnosed with dementia, Parkinson's, or a recent stroke, most companies will decline. If you have diabetes or high blood pressure that is well-controlled, you may still be able to buy a policy.

What happens if I run out of money and need care?

Medicaid will cover long-term care once your assets fall below your state's limit. You will need to spend down your savings first, and you will have limited choice about where you receive care, but you will not be turned away. This is why Medicaid exists — as a safety net for people whose savings run out.

Should I buy long-term care insurance or just save the money myself?

It depends on your health, your age, and how much you can afford to save. If you are young and healthy, insurance premiums are lower and you have time to build savings. If you are older or have health issues, insurance is more expensive and self-funding might make more sense. An elder law attorney or financial planner who specializes in retirement can help you compare the two approaches for your specific situation.