Long‑Term Care Planning for Early Retirees

Most people who are planning for early retirement are focused on making sure they have a big nest egg so they can enjoy traveling or spending more time with loved ones without worrying about running short of funds.

While you absolutely want to save for your dream retirement and ensure you can afford the cost of all the fun things you have planned, it's also crucial that you are ready for things that could go wrong. One of the most important of those is the possibility that you are going to need long-term care.

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Long-term care is something many people require as they age, and if you're retiring early, you had better be ready to pay for it, because the costs can be astronomical.

The good news is, if you understand the realities of how common it is to require long-term care and you know the truth about what it is likely to cost you, you can take steps to ensure you don't find yourself facing economic disaster if the day comes when you need a nursing home or home care.

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What are the chances you'll need long-term care?

Sadly, long-term care is something everyone should be prepared to pay for, because the chances you'll need it are higher than you might think.

According to estimates from the U.S. Department of Health and Human Services, 56% of Americans turning 65 now are going to need long-term care sometime during their remaining days. Many will need it for a long time -- at least five years (and often much longer) for 20% of 65-year-olds who develop a need for intensive assistance.

There is no way of knowing whether you will be within that 56% of Americans who need long-term care -- especially if you are retiring early. You probably have no idea what your health will be like when you're 70 or 80 if you stop work in your 50s or even your 40s.

What are the costs if you need long-term care?

Most Americans know that nursing homes are likely to be expensive. However, the true extent of the costs can still come as a shock, because both nursing home and home healthcare options are priced far higher than many people might expect.

The national annual median cost of a semiprivate nursing home went up 7% in 2024, now coming in at $111,325. Costs are rising faster than inflation or wage growth, putting the price tag even further out of reach for many.

And assisted living isn't all that much cheaper, even though it comes with far less hands-on caregiving. The annual cost of residing in an assisted living facility was $70,800 in 2024, which was a 10% increase from the year prior. These numbers both come from Genworth, which does an annual assessment of care costs.

Sadly, if you're thinking you could just hire help at home, that option is also going to be more expensive than you might think. Genworth reports that the median cost of a home health aide was up 3% in 2024, hitting $77,792, while the annual cost for homemaker services was up 10% to $75,504.

Expenses like these would put a huge strain on anyone's budget. Those who plan early retirement must realize that one disaster that leaves them or a spouse in need of care for even a short time could end up depleting their nest egg and leaving them without the funds they need.

What are your options?

Since there's both a high chance you'll need long-term care and a substantial chance it will be very expensive, you need a plan to address this issue before making your early retirement dreams a reality.

The good news is, there are a few options. Buying long-term care insurance is one of them, but this can also get expensive. According to the American Association for Long-Term Care Insurance, a 55-year-old man could expect to pay around $2,075 a year for a long-term care policy with a $165,000 lifetime limit and 3% inflation growth, while a 55-year-old woman buying the same plan could expect to pay around $3,700 per year.

There are also coverage limits, and not all long-term care policies have a great reputation, so looking around carefully for coverage is key. You'll need to make sure you have room for this in your budget before retiring. If you don't, working longer to grow your nest egg and afford this insurance could help you avoid going broke.

Working with a Medicaid planning lawyer is another alternative worth considering, especially if you have a higher net worth. A Medicaid planning lawyer can help you find ways to structure the ownership of your assets to qualify for Medicaid without spending down everything that you own first.

This is necessary to get below the program's resource limits since it is a means-tested benefit. Once you have qualified for Medicaid, it should pay for your nursing home care, as Medicaid covers custodial care while Medicare doesn't.

Medicaid planning can be complex, working with a lawyer to do it can be costly, and it needs to be done at least five years before you need long-term care in order for Medicaid to foot the bill -- so it's also not an option for everyone.

Before you retire, though, you'll need to either consider buying long-term care coverage; putting a Medicaid plan in place; or making sure your nest egg can cover well over $100,000 a year in costs without compromising your ability to support yourself, your spouse's ability to do the same, or your chance to leave a legacy. Otherwise, if the day comes when you can no longer live without care, disaster will await.

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Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.