Most retirement plans are built around saving enough and spending wisely. Long term care planning asks a harder question: what happens if you need help with daily life for months or years, and who pays for it? Nobody knows whether they will need care, how much, or when, but as Dana Anspach put it in a recent Sensible Money webinar, most of us will probably need care in some form. Anspach was joined by Stefan Cherneski, who works with long-term care insurance solutions, to walk through what care is, where it happens, what it costs, and how to prepare.
This article summarizes that conversation and shows how to approach long term care planning step by step. It is educational, not advice for your situation, and the cost and policy figures are examples the speakers shared, not quotes. Prices, benefits and rules vary by state, insurer and health history.
What long-term care is, and what health insurance does not cover
Cherneski started with the most common confusion. Health insurance, whether through an employer or Medicare, pays for a surgery, a doctor visit, a prescription or a procedure. It does not pay for the care you may need after that event, whether someone comes to your home or you move somewhere for help. That ongoing assistance is long-term care, and it is a different risk from a medical bill.
Insurers generally decide whether you qualify for benefits using two tests. The first is the six activities of daily living: eating, dressing, toileting, continence, bathing and transferring (moving in and out of a bed or chair). According to Cherneski, the usual hurdle is being unable to perform two of the six. The second test is a cognitive condition that requires care or supervision, such as needing someone to make sure you do not leave the stove on or wander off.
The one-of-six detail matters. Cherneski said the most common reason a claim is denied is that the person can only show one limitation, not two. Anspach added that you do not need insurance to use these signals: a stove left on, difficulty cooking, or trouble with home maintenance can tell a family that something is changing.
Why long term care planning starts before you need formal care
Care rarely begins with a nursing home. It often starts with help around the house, such as cooking, lawn care, cleaning or meals. Anspach noted that you can be physically healthy and cognitively sharp and still need help with meals. She recommends building the mindset now that accepting help is a sign of good judgment, not lost independence.
She also pointed to a financial side of aging. In her experience as a planner, the brain starts to change for most people, often beginning in the 80s, and tasks like paying bills, filing tax returns or managing logins and two-factor authentication can get harder. Building a relationship with a trusted family member or advisor early makes those handoffs easier. Our guide to how to talk to aging parents about money covers how to start that conversation.
Cherneski made a second point about caregivers. Family members, friends and neighbors are often the first line of care, and studies he cited suggest a primary caregiver’s own likelihood of needing care rises because of the emotional and physical strain. His advice was to use available resources, whether assets or insurance benefits, as soon as help is needed, instead of holding them back for later. Anspach agreed, noting that many people delay tapping benefits to preserve them for a worse day, which is the opposite of what tends to help.
Where care happens: aging in place or community living in long term care planning
Anspach shared a personal example of how differently two people can think about this. If she needed significant care, her answer was to move her into a residential facility. Her husband preferred care at home, and said he would worry about the quality of care and want cameras. Cherneski would prefer to stay home as long as possible, while agreeing that if one spouse died and the other needed care, a community setting might make more sense socially.
The options the webinar covered, from least to most care:
- Aging in place: care at home, sometimes with modifications such as grab bars or a walk-in shower, or wearable devices.
- Independent living: a community where you live on your own, often with meals and activities.
- Assisted living: help with daily activities in a residential community.
- Residential care homes: smaller homes, often around 10 residents with a high ratio of caregivers to residents.
- Memory care: a distinct setting for significant cognitive changes such as Alzheimer’s disease or dementia.
- Continuing care retirement communities (CCRCs): campuses that combine levels of care. Anspach called them the “cruise ship on land.”
One caution from Anspach: people often wait too long to move into a community like a CCRC, and care needs may still force a move within it. Cherneski added that long-term care insurance coverage for each setting depends on the policy. Memory care usually qualifies, independent living usually does not, and assisted living depends on whether you meet the two-of-six test.
What care can cost
Cost is the part of long term care planning most people avoid. The webinar shared illustrative figures, with the speakers noting that costs vary by location (Cherneski said his Northeast area is among the highest in the country). In the Arizona-area example, about 20 hours a week of in-home care ran roughly $800 a week, or about $3,200 a month. Facility figures in the example were about $5,000 a month at the low end for independent living, about $7,500 for assisted living, $6,000 and up for a CCRC depending on services, and $7,000 to $14,000 for memory care.
Anspach put those numbers in annual terms. At $10,000 a month, a residential care home would be $120,000 a year, while 24-hour care at home could run $300,000 or more. That gap is why the setting you choose, and whether you could afford your preferred one, may become part of the decision. She said she would rather preserve her flexibility during the active early years of retirement than save enough to keep 24/7 home care as an option, while her husband might choose differently. Both are reasonable choices, which is why the conversation belongs in a financial plan.
In Sensible Money’s plans, Anspach said, the team stress tests a five-year care stay, using a conservative duration, with costs inflated to around age 80. The test asks what resources would be available, and how the timeline changes if insurance is in place. Our guide to building a retirement income plan explains the broader approach.
Does Medicare cover long term care?
Cherneski described Medicare as health insurance for older adults: it covers doctor visits, procedures, surgeries and prescriptions, not ongoing custodial care. There is a limited exception, and it is the core answer to the question, does Medicare cover long term care? If you are in the hospital and are discharged directly to a nursing facility, Medicare may pay for the first 20 days. After that, co-insurance applies up to day 100, and beyond 100 days you are responsible for the cost. Those are the details the speakers shared, so confirm the current rules, including the hospital-stay requirements, on the Medicare website.
Cherneski noted that the first 90 to 100 days are not what worries him. The concern is an extended need and what the plan is for it. Anspach gave the example of a friend discharged from a hospital to a rehab facility: the early weeks may be covered, but if he is later judged to need longer-term custodial care, Medicare stops paying.
The webinar also took a question on military benefits. Cherneski said the answer depends on the person’s service, disability rating and benefits. Anspach noted that TRICARE For Life requires keeping Medicare Part A and B, skilled care may continue past day 100 only if medically necessary, and VA coverage “depends” on factors like disability status. Having access to these programs does not mean every care need is covered.
Medicaid long term care: coverage after you have spent down
Medicaid long term care benefits exist, but eligibility rules vary by state and are based on assets and income. Cherneski’s summary was that it generally applies after you have spent down your assets and have very little left. Anspach added that in Arizona, her understanding is that a single person must have less than $2,000 in assets, with a small allowance for a spouse. State rules differ, so check yours.
For most people engaged in financial planning, relying on Medicaid is not the goal, but it can act as a safety net. Anspach suggested asking any facility, before you move in, what happens if you run out of money and Medicaid takes over. Cherneski said facilities are more willing to admit someone who can pay for the near term, and some cannot require a resident to leave after spending down, but policies differ. That is a question to ask up front, not assume.
Traditional vs. hybrid long-term care insurance
Cherneski framed insurance as risk transfer: if you self-fund, you carry the full risk of a long or expensive need, and insurance passes part of it to a third party in exchange for premiums. Anspach connected this to Sensible Money’s income-ladder approach, which sets aside assets so that you do not have to make rash decisions in a market downturn. Insurance can similarly give you a buffer so a care event is not a panic. Our article Should I Purchase Long-Term Care Insurance? covers the decision from a family’s perspective.
Traditional policies pay one benefit, long-term care, usually on a reimbursement basis: you show proof of payment to a qualified provider and the insurer reimburses covered expenses. Cherneski noted that the benefits are contractually promised once issued, but premiums are not fixed. An insurer can ask the state insurance commissioner for rate increases on a block of policies, and premiums have risen in the past. Anspach has seen clients receive multiple increase notices within a few years and said each one calls for a case-by-case review. If a traditional policy goes unused, nothing is returned.
Hybrid policies combine long-term care with a life insurance or annuity benefit. Cherneski described the hybrids he prefers as having fixed premiums and contractually promised benefits, subject to the insurer’s financial strength, along with a death benefit or cash value if you do not need care. He also prefers hybrids that pay on a cash indemnity basis: once you qualify, the insurer sends a monthly payment and does not review how you spend it or who provides the care, which can cover unskilled caregivers at home. Some hybrids still use reimbursement, and health history can limit which products you qualify for.
The webinar’s example compared a traditional policy and an asset-based hybrid for a 60-year-old couple, each with an $8,000 monthly benefit and a $576,000 pool over 72 months. In that example the hybrid included a $288,000 life insurance benefit if neither partner used the coverage and about $190,000 of cash value, while the traditional policy returned nothing. The tradeoff was cost: the traditional policy had the lower premium. Cherneski added that the gap has narrowed as traditional insurers repriced their products. Benefits, pricing and underwriting vary widely, so treat the example as an illustration, not a recommendation.
Anspach also made a practical point about funding. If you pay premiums annually, cognitive decline or a hectic family crisis can cause a missed payment and a lapsed policy. Paying with a lump sum avoids that risk but ties up capital, so the right funding choice depends on your plan.
Paying for care without insurance
Self-funding can work, but it needs to be tested. Anspach said to ask whether a dedicated liquid pool exists, and whether the plan could support the household while one spouse needs full-time care and the other lives independently. Age gaps between spouses make that scenario more important.
Home equity is another source, with tradeoffs. Anspach said she is a bigger fan of reverse mortgages when long-term care coverage is in place, because without coverage the home often serves as the reserve asset you would sell to pay for care. Using it up early leaves no backstop. Taxes matter too: selling a home with a low cost basis while alive can trigger capital gains tax, whereas assets preserved for heirs may receive a step-up in basis. For people in their 80s, Sensible Money sometimes holds a shorter, thicker income ladder with extra reserves for a care event or the insurance waiting period.
Spending patterns can help. Using J.P. Morgan data on households with $1 million to $3 million in investable assets, Anspach showed that inflation-adjusted spending tends to fall in the slow-go years, while healthcare costs rise. That means a care cost may not stack entirely on top of today’s spending, and Social Security, pensions and portfolio income can help cover part of a daily care cost. For more on how these phases differ, see the phases of retirement.
Put the paperwork in place before you need it
The final section of the webinar was about documents and relationships. Anspach described adding a trusted contact, a trusted adult child as co-trustee, or a limited power of attorney on accounts when a client’s behavior changes. She stressed that custodians like Schwab and Fidelity often require their own forms, and a general durable power of attorney typically is not enough. People without children, as Anspach and her husband are, may need to name a professional fiduciary or conservator in their documents.
In the Q&A, Anspach advised self-funders to write down their wishes, such as “spend the money on my care” or a preferred order for selling the home or tapping an IRA, and to discuss them with whoever would act for them. Written wishes are not legally binding, but they ease the stress on the person making decisions.
The Q&A also touched on taxes. Cherneski said premiums on a tax-qualified long-term care policy may be partly deductible depending on age, and that benefits received are income tax free, though he recommended confirming with a tax professional. Medical expense deductions are limited to the portion above a percentage of adjusted gross income, which the IRS explains, and money paid from an HSA cannot also be deducted.
Where to start
You do not need to buy anything to begin long term care planning. These steps follow the conversation:
1. Talk with your spouse or partner about where each of you would want care, and what you would give up to afford it. 2. Look up the cost of care in the area where you might receive it. 3. Stress test a multi-year care need around age 80 to see what you could cover from your own assets. 4. If insurance is a possibility, compare traditional and hybrid designs from more than one insurer, including premium risk, benefit payout method and funding options. 5. Get the paperwork done: institution-specific forms, a trusted contact, and named agents or fiduciaries.
Every option involves tradeoffs, and the right mix depends on your health, family, assets and preferences. A written plan gives you a way to test your long term care planning choices before a care need forces them.
