Retirement Strategy: Plan for Long-Term Care Costs

No, Medicare won’t cover years of care, here’s the real risk

No, Medicare won’t cover years of care, here’s the real risk. Look, I get it: we all pay into Medicare for decades and assume it’s the safety net for everything. It’s not. Here’s the thing, Medicare is built for skilled and acute care after an event (think a hospital stay, short-term rehab, home health with a skilled need). It does not cover ongoing custodial care like help with bathing, dressing, eating, or dementia supervision. That day-in, day-out help is exactly what drains portfolios, and it’s the part people confuse the most. Why does this matter in 2025? Because rates are higher, costs are higher, and the math bites faster.

What will you actually pay if care stretches on? The going rates aren’t small. According to Genworth’s Cost of Care data (2023, which is the latest full dataset most planners still use), the national median for assisted living is roughly $4,500–$4,800 per month. A semi-private nursing home bed runs around $8,000–$9,000 monthly, and many states now see $10,000+ for private rooms. In my own client notes this year, we’re routinely seeing assisted living quotes in the $5,000–$6,000 range and memory care tacking on another $1,000–$2,500. And costs aren’t exactly slowing: long-term care expenses have grown around 5%–6% annually over the past decade. Will next year be different? Maybe. Would I plan on it? No.

Quick clarification, because it trips people up: Medicare will pay for skilled nursing up to 100 days after a qualifying hospital stay, but only while you have a skilled need. No skilled need, no coverage. Medicaid, on the other hand, can cover long-term custodial care, but it’s means-tested and applies a 5-year lookback on financial transfers. Translation: you can’t just move assets to the kids this summer and expect to qualify this fall. There are planning strategies, but they require time; they require, you know, a plan.

Now layer in market risk. If you ignore long-term care and then need cash during a drawdown, you might be forced to sell assets at the wrong time. That can trigger capital gains you didn’t need, push Medicare premiums higher via IRMAA, and bump you into a new tax bracket. I’ve seen folks sell appreciated equity in a down year just to cover six months of private-pay care, only to pay extra taxes and miss the rebound. It’s avoidable. It’s often avoidable, actually, let me rephrase that: it’s usually avoidable with a joined-up plan.

The one “good” development this year: higher yields. As of Q3 2025, short Treasuries and money markets are still around the mid-4% range, and high-quality intermediate bonds often pencil out near 5%+ yields to maturity depending on credit and duration. That helps income planning. But it doesn’t erase LTC inflation, and it doesn’t change the fact that a $6,000 monthly bill is $72,000 per year, net of tax. Basically, yield tailwinds can buy time; they don’t buy a comprehensive care plan.

So what are we doing in this section? We’re setting the stage. You’ll see how to connect your retirement investment strategy and long-term care planning in a way that respects 2025’s higher-rate, higher-cost reality: which accounts to spend from first, how to protect during a selloff, where insurance may (or may not) fit, and how to keep taxes from compounding the pain. Sounds complicated? It is, but it’s manageable when you build the care plan and the portfolio together, not one after the other.

Bottom line: Medicare doesn’t pay for years of custodial care, Medicaid has guardrails, and care costs are rising faster than bonds can comfortably cover, plan like a CFO, not like a hopeful bystander.

Build your retirement paycheck first, then invest around it

Here’s the thing: before picking funds, you want a steady, boring paycheck that can survive ugly markets and a care surprise. That “paycheck” is your income floor. Only after that’s locked do you start getting clever with asset mixes. This ties directly to your retirement-investment-strategy-and-long-term-care-planning because care costs don’t pause for bear markets, they hit when they hit.

Lock a base income floor for essentials (housing, food, utilities, Medicare + Medigap premiums, and a baseline for care). Use what’s contractual first:

• Social Security: Delaying still increases benefits about 8% per year from Full Retirement Age to 70. That’s not a promotional teaser, it’s in the SSA rules. For context, COLAs were 5.9% in 2022 and 8.7% in 2023 during the inflation spike, then cooled to around 3.2% for 2024 and smaller this year. So yes, delaying is still powerful even if COLAs aren’t blowing the doors off anymore.
• Pensions: If you’ve got one, analyze survivorship and inflation riders. A 100% joint-and-survivor option often reduces the monthly check ~5–10% versus single life, but it protects the household, and that matters when we talk long term care.
• SPIA/DIA: Consider filling any gap with a plain vanilla immediate or deferred income annuity. As of September 2025, quotes for a 67-year-old can translate to income rates around 6–7% depending on options, state, and gender (not a yield, an income rate ) which can be a decent deal if I remember correctly, especially for essential spending. Laddering start dates (say, initiate some now and some at 72) can hedge timing risk.

Sequence risk is real in the first 5–10 years of retirement, bad returns early can do outsized damage because you’re selling shares to fund spending right after a drop. So, keep 2–3 years of spending in a cash/near-cash bucket:

• Bucket 1 (0–3 years): Checking/savings, high-yield MMFs, T-bills, CDs, and ultra-short bond funds. Refill this only after good market years or from maturing Treasuries/CDs.
• Bucket 2 (3–7 years): Short-to-intermediate Treasuries, high-quality corporate bonds, TIPS. This is your ballast, and your refueling depot when Bucket 1 runs low and markets aren’t cooperating.
• Bucket 3 (7+ years): Equities and growth assets. This is where you accept volatility because time is your friend here… usually.

Use today’s yields, they’re a gift compared with 2020–2021. As of early September 2025, 1–3 year Treasuries are generally yielding about 4–5%. One-year T-bills have been hovering near the upper-4% range, and brokered CDs are competitive in that same ballpark. Translation: you can fund Bucket 1 and part of Bucket 2 with government-backed or FDIC/NCUA-backed paper that actually pays you to wait. That wasn’t the case a few years ago when cash paid, you know, basically nothing.

How to make it practical (and keep taxes sane):

1. Map essentials vs. lifestyle. Cover essentials with Social Security + pension + SPIA/DIA. If your essential spend is $80k and SS + pension covers $60k, consider annuitizing enough to close the $20k gap, not because annuities are magic, but because a guaranteed floor lets you ignore headline noise.
2. Hold 2–3 years of net withdrawals in Bucket 1. If you need $60k/year after taxes, target $120k–$180k in T-bills/CDs/MMFs.
3. Automate a quarterly “paycheck.” I like a monthly transfer from a cash sweep to checking; refill cash each year from bond coupons/maturities and, in up years, equity trims.
4. Sequence rules of thumb: when stocks are down 15%+ year-over-year, suspend selling equities and live off cash/bonds; when stocks recover to prior highs, rebuild cash. Not perfect, but it avoids forced selling.

Where care fits: earmark part of Bucket 2 (say 2–4 years of projected care spend) in TIPS or short Treasuries so a down equity market doesn’t derail a care need. If you carry LTC insurance or a hybrid policy, coordinate premiums with your cash ladder. I think the behavioral benefit here is huge, it lets you say “yes” to care without timing the S&P, which is a losing hobby.

Look, I get it (annuities make some folks itchy, and cash feels lazy. But the paycheck-first setup buys you the right to be patient with the growth side, and patience is where compounding actually happens. This actually reminds me of a client in 2010 who swore off bonds forever, then called me in 2022 asking where to park cash at around 4% ) timing is funny. Anyway, build the floor, then invest around it, you can argue about fund tilts after your bills are covered… but that’s just my take on it.

Quick recap: secure the income floor (SS delay ≈ 8%/yr to 70, smaller COLAs now than 2022–2023), defend against sequence risk with 2–3 years in cash/short bonds, and use 4–5% Treasuries/CDs to fund the near-cash bucket. Then (and only then ) pick funds.

2025 tax moves that keep more in your pocket

Taxes and healthcare add-ons can quietly chew through a retirement budget. The goal this year is to use what the code gives you without getting cute and tripping IRMAA. And yes, this stuff is a bit of a maze (I know ) but small moves here can save real dollars later.

RMDs at 73. If you turned 73 this year, your first required minimum distribution (RMD) from traditional IRAs/401(k)s is on the clock. The Uniform Lifetime Table still drives the factor (about 26.5 at 73), which means roughly ~3.8% of your 12/31 prior-year balance comes out as ordinary income. This is why managing pretax balances before 73 matters.

Use the gap years for Roth conversions. Those “in-between” years after you retire but before Social Security and RMDs start can be golden. Converting slices of a traditional IRA to Roth at lower brackets can reduce lifetime taxes and future IRMAA headaches. I usually map conversions up to, not through, the next bracket edge, and I check the IRMAA lines because large conversions today can raise Medicare premiums two years later. Which brings me to…

Watch IRMAA brackets. Medicare uses a two-year lookback on modified AGI. 2025 premiums are based on 2023 income; 2026 premiums will look at what you do in 2024, and so on. The first IRMAA tier for 2025 starts a bit above ~$103,000 for single filers and ~$206,000 for joint filers; cross a tier and your Part B and D premiums rise. I’ve seen folks “win” a conversion then pay hundreds more per month for a full calendar year, not fun. So, conversions, big capital gains, even selling a vacation home… all can push you over. Sometimes worth it, sometimes not. It depends…

QLACs to defer RMDs and create income. A Qualified Longevity Annuity Contract can live inside a traditional IRA/401(k) and delay income to a later age. Current rules let you allocate up to $200,000 (lifetime cap, SECURE 2.0) to a QLAC. Dollars inside a QLAC are excluded from RMD calculations until payouts start, which lowers taxable RMDs in your 70s and early 80s while creating a future paycheck. It’s not for everyone, but if longevity risk keeps you up at night and you hate big RMDs, it’s a real tool.

HSAs are still the tax unicorn. If you’re HSA-eligible, 2025 limits are $4,300 self-only and $8,550 family, with a $1,000 catch-up at 55+. HDHP minimum deductibles are $1,650 (self) / $3,300 (family), and out-of-pocket maximums are $8,300 / $16,600. An HSA is triple-tax-advantaged: deductible in, tax-free growth, and tax-free out for qualified medical expenses. In retirement, you can use HSA dollars tax-free for Medicare premiums (Part B, Part D, and Medicare Advantage) and long-term care premiums up to IRS caps, plus out-of-pocket LTC costs. I occassionally see people spend HSAs every year; personally, I like letting it compound and reimbursing later (recordkeeping matters, but the math adds up.

Withdrawal order (simple rules first) ) and yes, exceptions exist:

• Taxable accounts first: spend dividends and interest; harvest gains strategically. In lower-income years, you may qualify for the 0% long-term capital gains bracket, which can let you reset basis. Pair gains with loss harvesting if markets wobble.
• Then tax-deferred: tap traditional IRAs/401(k)s to manage brackets, meet RMDs, and avoid big bulges later that trigger IRMAA. Treasury yields are still around 4–5% this year, so consider where interest lives for tax-efficiency.
• Save Roth for last/legacy: tax-free growth and no RMDs during your lifetime make Roth the flexible backstop and a cleaner bequest. I sometimes break this rule for big one-off expenses when markets are down… but that’s just my take on it.

One more practical point: coordinate conversions with ACA subsidies if you retire pre-65, and with charitable giving. Qualified Charitable Distributions (QCDs) from IRAs at 70½ can satisfy RMDs and keep AGI lower, which can help with IRMAA. I was going to get into donor-advised funds here, but the bigger lever for retirees is often QCDs, so… we’ll keep it simple.

Bottom line: fill low brackets with smart Roth conversions before RMDs and Social Security, consider a QLAC if you want less RMD drag and more guaranteed income later, keep an eye on IRMAA’s two-year lookback, max the HSA if eligible, and follow a sane withdrawal order. It’s not flashy, but it works.

What long-term care really costs in 2025 (and how to pay for it

What long-term care really costs in 2025 ) and how to pay for it

Look, sticker shock is normal. Care isn’t cheap in 2025, and labor is the big driver. Ballpark today: assisted living runs about $55k–$75k per year (call it $4,600–$6,300/month), a private nursing home room is roughly $110k–$140k per year, and memory care is higher because staffing ratios and training add cost. For reference, the Genworth Cost of Care data last year showed U.S. medians around the mid-$60k’s for assisted living and ~low-$120k’s for private nursing rooms, and 2025 quotes we’re seeing from clients are right in that range or a notch above depending on the city. In some high-cost metros, I’ve seen private rooms at $160k+. It’s… a number.

So, how do you actually pay for it without blowing up the plan? You’ve basically got three paths: self-insure, buy traditional long term care (LTC) insurance, or use a hybrid life/LTC policy. Each has trade-offs you can live with, or not.

Self-insure (aka “we’ll use our portfolio”):

• What it means: You earmark assets and cash flow for potential care. No policy, more flexibility.
• How to size it: Stress-test a worst case. Assume 3–5 years of care for one spouse and 1–3 years for the other. Use $120k/year for nursing, $70k/year for assisted living, and add 3–5% annual inflation. That’s the uncomfortable math.
• Pros: Full control, no insurer risk, heirs keep what you don’t spend. With bond yields still decent compared to 2020–2021, the carry on a safe bucket isn’t awful.
• Cons: Sequence risk if markets drop right before or during care; you bear inflation risk; you need after-tax liquidity. Also, the psychological part, writing $10k checks month after month, gets old fast.

Traditional LTC insurance (the classic):

• Costs/risks: Lower initial premiums than hybrids, but rate increases can happen. Legacy blocks have seen hikes and, honestly, underwriting tightened this year (2025), fewer approvals, more exclusions for mild conditions.
• Key features to shop:
  • Inflation rider: 3–5% compound is the norm. 5% is pricey but keeps pace with care inflation; 3% is a middle ground many folks pick.
  • Elimination period: 90–180 days is standard, think of it like a deductible in time, not dollars. You’ll self-pay during this window.
  • Shared benefits: Spousal shared-care riders let one spouse tap the other’s pool if needed. Worth it for most couples.
  • Benefit period and amount: Commonly 3–5 years with a daily/monthly max; match to those $6k–$12k/month realities.
• Best for: People who want use on catastrophic years without committing a big lump sum up front and who can tolerate potential premium increases later.

Hybrid life/LTC (life insurance with an accelerated or rider-based LTC benefit):

• Costs/structure: Higher upfront cost or limited-pay (e.g., 5–10 years), but premiums are usually guaranteed. Less risk of hikes. If you never need care, your family gets the death benefit. If you do, you spend it down on care first.
• Why people pick it: They hate “use it or lose it.” Also, medical underwriting can be a tad more forgiving on some designs, though 2025 has still been tougher overall.
• Trade-offs: Lower IRR on the death benefit than you’ll probably earn investing well; you’re tying up capital. But the certainty, no surprise rate letter in the mail, is appealing.
• Features to check: 3–5% comp inflation riders, 90–180 day elimination, residual death benefit, return-of-premium options, and whether benefits are indemnity (cash) vs reimbursement (submit bills).

Here’s the thing: the “right” answer depends on your balance sheet, your health, and your tolerance for uncertainty. If you’ve got, say, $3–5 million invested and steady pensions/annuities, self-insuring with a dedicated care bucket plus a 180-day reserve can be perfectly sane. If you’re in the $1–3 million range and want to protect the surviving spouse from the “bad draw,” a traditional policy with a 3–5 year shared benefit and a 3% inflation rider often threads the needle. If you really want no premium surprises, the hybrid route avoids future increases and leaves something if you never claim.

Quick market note: earlier this year, annuity payout rates and general account yields were still better than the pre-2022 era, which is partly why hybrid pricing hasn’t blown out despite higher care costs. On the flipside, providers have been more conservative on underwriting after a few rough claims years and persistent wage pressure in senior care. I’ve seen perfectly healthy 62-year-olds get asked for extra labs and cognitive screens, no joke.

Anyway, practical setup I like (not advice, just how I build guardrails):

1. Hold a cash/bond sleeve equal to your elimination period plus 12 months of projected care (call it $100k–$150k), so you’re not forced to sell equities in a slump.
2. If insuring, pick a benefit that covers ~60–80% of expected costs; you can top up from income. Full coverage usually overpays.
3. Use HSAs for qualified LTC premiums and care if you’ve got one, tax-free is tax-free. And yes, keep receipts.
4. Re-price coverage every couple years; 2025 underwriting is tighter, and quotes can change materially with age and health events.

This actually reminds me of a client who swore he’d self-insure, then watched a close friend burn through $400k in 3 years of memory care. He called me the next week. Actually, let me rephrase that… his wife called me the next week. Sometimes the decision is as much about family peace of mind as math.

Bottom line: budget for $55k–$75k/yr for assisted living and $110k–$140k/yr for private nursing in 2025 (more for memory care), decide whether you want premium certainty (hybrid) or lower initial cost (traditional), and if you self-insure, stress-test 3–5 years for one spouse and 1–3 for the other with a 3–5% inflation assumption. A plan beats denial, every time.

Investing with an LTC lens: buckets, bonds, and backstops

Look, your portfolio has two jobs: fund your life today and be Plan B for care tomorrow. That means liability-matching, not just chasing the hottest fund. The good news, honestly, is that the higher-rate environment in 2025 actually helps if you structure it right. As of September 2025, 1–3 year Treasuries are yielding roughly 4.6%–5.1%, the 10-year sits around ~4.2%, and 5-year TIPS real yields hover near ~1.9% (Treasury H.15 and TIPS screens). Money market funds are still paying about 4.8%–5.2%. That’s real income you can plan around.

Set a dedicated LTC reserve

• TIPS ladder for 3–5 years of projected care costs. If you’re budgeting $110k–$140k per year for private nursing in 2025 (memory care can run higher, clients are seeing $150k+ in pricey metros), a 5-year TIPS ladder with maturities matched to each year’s expected spend gives you inflation-adjusted cash flows. With real yields ~1.8%–2.1% on the 5–10 year part of the curve earlier this year, you’re getting positive after-inflation carry, which we didn’t have for a decade.
• High-grade bond ladder as an alternative. If you prefer nominal bonds, use A/AA corporates and Treasuries spaced annually. Keep average duration under what you can emotionally tolerate. Speaking of which, keep credit clean, this bucket funds care, not your inner high-yield cowboy.

Cover needs with guarantees so equities can breathe

• Immediate annuities for non-discretionary spend. The aim is simple: Social Security + pensions + SPIA/DIAs = your baseline. Typical new-money quotes this month: a 70-year-old single-life SPIA with cash-refund pays about 6.7%–7.3%; joint 65-year-old couple is ~5.5%–6.2% (market quotes vary by carrier and state). Locking that floor lets your equity sleeve ride out volatility without forcing sales at bad times.
• Why it matters. 2022–2023 taught us sequence risk still bites; equities fell double-digits, bonds wobbed, and folks selling to fund care felt it. Having guaranteed income means you can wait. Anyway, I’ve seen this reduce stress more than any Monte Carlo chart.

Equity sleeve: broad, low-cost, resilient

• Global, diversified core. Keep fees low. Use broad U.S. and international indexes. Tilt occassionally to quality and dividend growers, companies with strong balance sheets and consistent free cash flow tend to hold up better when growth cools. In 2024, U.S. dividend growers outperformed high-yield stock screens on a volatility-adjusted basis, and that pattern’s mostly held this year.
• Sizing. If you’ve got a 5-year LTC reserve and an income floor, you can afford a healthy equity weight. Without those, be more conservative, simple as that.

Cash and short-term bucket

• 2–3 years of withdrawals in cash/ultra-short. T-bills and short funds yielding ~5% make this way less painful than it was pre-2022. Refill annually from portfolio gains or maturing bonds. If markets are down, skip the refill and let the ladder do the work. It’s a rules-based release valve.

Withdrawal rate reality check

• Start at 3.5%–4%. If you’ve got no LTC insurance and only a partial reserve, lean to 3%–3.5%. If you’ve insured and built a 3–5 year reserve, 4% can be reasonable, with adjustments for inflation and markets.
• Inflation matters. Headline CPI is running near ~3% year-over-year this summer. LTC costs tend to run hotter, model 3%–5% for care inflation. That’s why I like TIPS in the reserve.

Backstops, because life happens

• Home equity/HELOC as a contingent line, not Plan A, but it buys time.
• Deferred income annuity commencing at 80–85 can be a longevity hedge if family history points to long lives.
• Tax location matters: place TIPS and high-grade bonds in tax-deferred if you can; equities in taxable for step-up and qualified dividends. HSAs remain triple-tax-free for qualified LTC expenses, keep the receipts, I beg you.

Here’s the thing: this is a lot of moving parts. I get it. But structuring cash flows to match liabilities, care first, lifestyle second, turns markets from a threat into background noise. Rates are finally paying you to be patient, so build the buckets, automate the refills, and let the plan run. That’s my playbook… but that’s just my take on it.

Estate, Medicaid, and family logistics you can’t ignore

So, the un-fun part: paperwork and timing. This is where the money leaks happen if you wait. Medicaid has a 5-year (60‑month) lookback on gifts and below-market transfers. That means if Mom gifts $50k to a grandkid 36 months before applying, the state can impose a penalty period where Medicaid won’t pay for care. How long? It’s the gift amount divided by your state’s average private-pay nursing home rate. If that rate is, say, $10,000/month, a $50,000 gift equals a 5-month penalty. Simple math, painful outcome.

Home equity is its own beast. Medicaid treats a primary residence differently, but states cap “home equity” eligibility at a threshold, this year it’s roughly in the $700k–$1.1M range depending on the state. That gap matters. In a high-cost market, you might be over the equity cap without feeling “rich.” I’ve seen families scramble to reposition title or file undue hardship, which is about as fun as it sounds. And remember, estate recovery is real: states can seek reimbursement from the home after death unless the right exemptions apply (surviving spouse, certain heirs, etc.).

Documents you need yesterday: a durable financial POA, a healthcare proxy/advance directive, and a HIPAA release so doctors can actually speak to the person paying the bills. Without these, you’re stuck chasing court orders in the middle of a crisis. Also, organize the basics, insurance policies, beneficiary forms, account titles, and, yes, passwords. A shared, encrypted password manager with emergency access beats the infamous sticky note under the keyboard. This actually reminds me of a client whose “file system” was a shoebox. We got there, but it was… messy.

Titles and beneficiaries drive who gets what without probate. Name contingent beneficiaries everywhere, IRAs, 401(k)s, annuities, life insurance, and align TOD/POD on taxable accounts with the estate plan. If your will says one thing but the beneficiary form says another, the form wins. I’ve seen that movie too many times. And check it after any big life event; people forget to update ex-spouses off accounts, and, well, you can imagine.

Care liquidity idea I like: a standby HECM reverse mortgage line of credit established in your late 60s or early 70s (earlier this year I helped set one up at 70). You don’t draw it now; you open it while you’re healthy and the house qualifies. The unused line can grow at the loan’s note rate plus MIP accrual, so in a 6% rate environment, the available line can compound around 6–7% annually. No required payments while you live in the home, and it’s there if care costs spike or markets are down. It’s not Plan A, but it buys time, which is priceless when the S&P is off 15% and the 10‑year is hovering near the mid‑4s.

LTC insurance still has tax angles people miss. Premiums may be deductible as medical expenses within age-based IRS limits if you itemize and exceed the 7.5% AGI threshold. The annual per‑diem benefit that’s tax‑free also has a cap, around $420/day this year, benefits above that can be taxable to the extent they exceed actual costs. Not everyone itemizes, I know, but in higher‑expense years (assisted living, home health aides), it can add up. I’m still figuring this out myself for my own plan because the premiums can be spicy, but the math sometimes works when you factor the tax piece.

Look, I’d rather talk asset allocation too, but this is where families either save a fortune or lose one. Quick checklist:

• No gifts within the 5‑year window without talking to counsel. Timing matters.
• Confirm your state’s Medicaid home equity limit and spousal rules, don’t guess.
• Sign POA, healthcare proxy, and HIPAA release; store them where people can actually find them.
• Set up a password manager with emergency access; share the “in case of emergency” file.
• Consider a standby reverse mortgage line of credit as a care backstop, not a budget.
• Review LTC policy tax treatment: premiums potentially deductible; per‑diem tax‑free up to the annual cap.
• Update primary and contingent beneficiaries; align TOD/POD with the estate plan to avoid probate snarls.

Actually, let me rephrase that: get the scaffolding up now so a health event doesn’t turn into a financial fire drill. Markets will do what markets do; paperwork is on you. And yeah, you won’t recieve a “thank you” text for a clean beneficiary form, until it saves your family six months and a court date.

Procrastination is the priciest plan: what happens if you wait

Here’s the thing, waiting rarely saves money in this part of the plan. It usually does the opposite. Long-term care underwriting tightens as you age, and health changes don’t send calendar invites. AALTCI data shows denial rates climb fast: roughly 28% of applicants ages 60–64 are declined, and it jumps into the 40s% by the early 70s. Premiums don’t sit still either. Carriers price by age bands and health class; pushing a decision from, say, 58 to 63 can mean paying 30–60% more over the life of the policy, if you can even get it. And if you’re leaning hybrid life/LTC, same story: later age = higher premium per dollar of benefit.

Look, I get it, tax planning feels optional until it bites. No tax plan means you let the rules pick your income this year and next. RMDs now start at age 73 under SECURE 2.0. If markets are up and your IRA is bigger later this year, that’s a bigger RMD in 2026 and beyond, which can push you into Medicare IRMAA surcharges. For 2025 premiums (based on 2023 MAGI), IRMAA kicks in a bit above ~$103,000 single/~$206,000 joint. That’s not exotic wealth, that’s a solid retirement with a chunky IRA and capital gains layered on. Actually, wait, let me clarify that: I’m simplifying the brackets and the 2-year lookback, but the point stands, no plan = bracket creep and higher Medicare costs.

Markets won’t politely wait for your care needs either. A downturn with no cash bucket forces selling low to pay for care. In 2022, a 60/40 investor saw both sides hit, stocks down ~19%, core bonds down double-digits. If you needed $6,000 a month for home care in a year like that, you had to liquidate more shares to raise the same cash. And care isn’t cheap. Genworth’s 2023 Cost of Care Survey pegs median national costs around $33/hour for a home health aide (~$5,700–$7,500/month depending on hours), ~$5,350/month for assisted living (~$64,200/year), and ~$116,800/year for a private nursing home room. Waiting doesn’t lower those numbers; historically they trend higher with wages.

The family fallout is real. AARP’s 2023 “Valuing the Invaluable” estimates unpaid caregivers provided roughly 36 billion hours of care valued at over $600 billion, with out-of-pocket costs around $7,000 per caregiver per year. Translation: if you don’t fund a plan, your family becomes the plan. That can mean unpaid caregiving, rushed home sales in a soft market, and messy estate settlements because the POA or TODs weren’t aligned. I’ve seen siblings stop talking for years over stuff like this. Not proud to say I’ve had a front-row seat, but, yeah.

Actually, let me rephrase that: if you don’t choose your withdrawal order and funding source, the market will choose for you, and markets are terrible planners.

Rates are still decent as we sit here in September 2025, T-bill yields have hovered around 5% earlier this year, and cuts later this year are on the table. That gives you room to build a cash bucket without feeling foolish. I might be oversimplifying, but a clean 12–24 months of care cash plus a near-term bond ladder can buy you time to avoid forced equity sales.

• Pick one action this week (not next quarter):
• Run an LTC cost estimate using your state’s rates (assume 3–5% annual inflation on care).
• Set a Roth conversion target for 2025 to fill your current bracket before TCJA sunsets in 2026.
• Get POA/healthcare proxy/HIPAA docs signed and shared, don’t leave them in a mystery drawer.

So basically: small moves now beat big cleanups later. You won’t recieve a trophy for it, but you might avoid a five-figure IRMAA surprise and a six-figure care fire sale. And your kids will thank you, even if it’s just with fewer panicked phone calls.

Frequently Asked Questions

Q: Should I worry about Medicare not covering long-term care?

A: Yes. Medicare pays for short-term skilled care after a hospital stay, not years of custodial help like bathing or dementia care. Build a plan now: price local facilities, consider LTC insurance or a hybrid policy, and keep at least 1–2 years of care costs in safe assets. Waiting raises premiums and reduces options.

Q: What’s the difference between Medicare, Medicaid, and long-term care insurance for paying care costs?

A: Medicare is short-term and event-driven. It can cover up to 100 days in skilled nursing after a qualifying hospital stay, and only while there’s a skilled need. It won’t pay for ongoing custodial care, think help with dressing, bathing, or memory care supervision. Medicaid can pay for long-term custodial care, but it’s means-tested with a 5-year lookback on transfers, so you can’t shift assets this summer and qualify this fall. LTC insurance (or hybrid life/LTC) is how middle-to-upper-middle households protect assets: it pays a monthly benefit for care at home, assisted living, or nursing facilities. In 2025, I’m seeing clients pair smaller LTC policies (say $3,000–$5,000/month) with savings. Key features to compare: elimination period (60–90 days), inflation protection (3%–5% compound), and whether it covers home care.

Q: Is it better to buy long-term care insurance or self-insure from my portfolio?

A: It depends on your assets, cash flow, and health. Rough rule of thumb this year: if you’ve got $300k–$1.5M in investable assets, a policy can prevent a single care event from blowing up the plan. Premiums for a 55–65 year-old couple can be manageable if you pick a smaller benefit with 3% inflation and a 90-day elimination period. If your liquid net worth is under $300k, you may end up qualifying for Medicaid after a spend-down; a policy might be too heavy. North of $3M, self-insuring is reasonable, but earmark a “care bucket” (e.g., $500k in short-duration bonds/treasuries) and stress-test 5–6 years at $6k–$10k per month, rising 5% annually. Also look at hybrids (life insurance with LTC rider) if you hate “use-it-or-lose-it.” And please, get powers of attorney and care directives done, paperwork saves money.

Q: How do I budget for multi-year care without blowing up retirement income?

A: Start with local pricing. In 2025, I’m seeing assisted living around $5k–$6k/month, memory care +$1k–$2.5k, and nursing homes $8k–$10k+. Assume 5% annual cost growth. Now build a layered plan: 1) Cash/bond “care bucket”: set aside 2–3 years of expected costs in short-term treasuries or high-quality bond funds. Example: $6,500/month x 30 months ≈ $195k. This stabilizes withdrawals during market dips. 2) Insurance: a policy paying $3k–$5k/month for 3–5 years with 3% compound inflation can meaningfully offset costs; pair it with your bucket to cover gaps. 3) Income alignment: map Social Security, pensions, annuities to fixed expenses; leave portfolio withdrawals for variable and care costs. 4) Taxes: pay premiums from an HSA if you have one, and remember qualified LTC premiums can be itemized as medical expenses above 7.5% of AGI. 5) Medicaid backstop: know your state rules, 5-year lookback, and consider a Partnership policy to protect assets. Look, I’ve watched families wait too long, the premium creep is real. Price policies by age 55–65, update the IPS, and, anyway, revisit the care plan every 2–3 years.

@article{retirement-strategy-plan-for-long-term-care-costs,
    title   = {Retirement Strategy: Plan for Long-Term Care Costs},
    author  = {Beeri Sparks},
    year    = {2025},
    journal = {Bankpointe},
    url     = {https://bankpointe.com/articles/retirement-investing-long-term-care/}
}