Will Long-Term Care Wreck Your Retirement Plan?

Key Takeaways

1. About 70% of people turning 65 today will need some kind of long-term care. It’s a planning problem, not an edge case.
2. Medicare barely helps. It covers up to 100 days of skilled nursing after a 3-day inpatient hospital stay, and you pay $217 a day for days 21 through 100 in 2026.
3. A private nursing home room ran a median $129,575 a year in the 2025 CareScout survey. Assisted living ran $74,400.
4. Insurance is one way to handle the risk. Self-funding and hybrid policies are others. The right answer depends on your numbers, not a rule of thumb.
5. Nevada has no state income tax, so there’s no state deduction or credit for premiums either way. The federal deduction is capped by age and rarely clears the 7.5% floor.
6. We’re fee-only and sell no insurance. We model the risk with you, then you take it to a licensed insurance professional if a policy makes sense.

Long-term care is the help you need with everyday things late in life. Bathing. Dressing. Getting around the house. Medicare mostly doesn’t cover it, and it’s the single biggest unfunded risk I see in otherwise solid retirement plans. Whether you need a policy depends on your assets, your family, and how you’d rather carry a risk that’s likely but not certain.

Here’s how I walk clients in Reno through it.

What counts as long-term care?

It isn’t medical treatment in the usual sense. It’s help with what the industry calls activities of daily living, or ADLs: bathing and showering, personal hygiene, dressing, using the toilet, moving around the house, and feeding yourself. Care can happen at home, in assisted living, or in a nursing home.

A policy pays out once you hit its trigger, usually needing help with a set number of those activities, or a cognitive diagnosis like Alzheimer’s. It pays up to a daily or monthly cap, for a set benefit period, after a waiting period. Every contract is different, which is why I never talk about policies in absolutes.

I covered this in depth on the podcast in Long-Term Care Explained: What It Costs, Who Needs It, and How to Plan, and in Your Fiscal Physical I call long-term care one of the biggest unfunded risks in most retirement plans. People plan carefully for income and taxes, then leave this line blank.

How likely am I to need long-term care?

More likely than most people assume. Someone turning 65 today has about a 70% chance of needing some form of long-term care.

The average hides a wide range. Roughly a third of today’s 65-year-olds may never need it. About 20% will need it for more than five years. Women average about 3.7 years of care, men about 2.2.¹

What I actually see is that it rarely arrives gradually. Someone’s in decent health, getting around fine, and then there’s one fall. A broken hip, muscle mass gone, and they never get back to where they were. Or a diagnosis lands and the decline is fast. That’s the version people don’t budget for.

That uncertainty is the whole reason insurance exists. You don’t buy it because you know you’ll need care. You buy it because you can’t know, and the downside is big.

What does long-term care actually cost?

Enough to reshape a plan. These are the national medians from the 2025 CareScout Cost of Care Survey:²

•    Nursing home, private room: $129,575 a year ($355 a day)

•    Nursing home, semi-private room: $114,975 a year ($315 a day)

•    Assisted living: $74,400 a year ($6,200 a month)

•    Non-medical caregiver at home: about $35 an hour

•    Private duty nurse at home: about $90 an hour

Watch that last pair. CareScout combined homemaker and home health aide into one “non-medical caregiver” category in 2025. If you need skilled nursing at home, you’re budgeting against $90 an hour, not $35. That’s a big gap to get wrong.

Now the duration question, because this is where the scary numbers usually come from. The average nursing facility stay is about a year, which at the median private-room rate is roughly $130,000.¹ But one in five 65-year-olds needs care for more than five years, and at that rate a long private-room stay runs past $600,000. Planning only for the average leaves you exposed to exactly the cases that do the damage.

These are national medians and Northern Nevada runs its own way, so treat them as a starting point, not a quote.

Here’s the part I stress with clients. This is one concentrated expense landing late in retirement, often alongside declining health and a surviving spouse who still needs income for another decade or two. The timing is what makes it dangerous, not just the number.

Doesn’t Medicare cover this?

Mostly no, and this is the most expensive misunderstanding I run into.

Medicare covers skilled nursing for up to 100 days per benefit period, but only after a hospital stay of at least three consecutive days as an inpatient. Time under observation doesn’t count, and people get caught by that constantly. Even then it isn’t free. In 2026 you pay nothing for days 1 through 20, then $217 a day for days 21 through 100, then everything after that.³

What Medicare will not cover is custodial care, the help with daily activities that makes up the bulk of long-term care.³

Medicaid does cover custodial care, but only if you meet strict income and asset limits that vary by state. In most states an individual can keep only about $2,000 in countable assets.⁴ For anyone who wants to leave something to a spouse or kids, spending down to Medicaid isn’t a strategy. It’s what happens when there wasn’t one.

That gap, too much to qualify for Medicaid and costs Medicare won’t touch, is the space this whole decision lives in. If you want the related Medicare trap, read how RMDs can raise your Medicare premiums.

Who actually needs long-term care insurance?

This is the question I get most, and a blanket yes or no does people a disservice. Think of it as a spectrum.

Limited assets. Premiums are hard to sustain and Medicaid is the likely backstop. A policy may not be the best use of tight dollars.

Substantial wealth. Well into the millions, and you may be able to absorb care out of the portfolio without threatening your lifestyle or your heirs. Plenty of clients self-fund on purpose. That’s a real strategy, not a punt, as long as it’s a decision and not an assumption.

The middle. Savings and home equity worth protecting, a multi-year care event would genuinely damage the plan or your spouse’s security, and premiums fit the budget. This is where coverage most often earns its keep.

If you’re in the self-fund range, the question stops being “should I buy a policy” and becomes “which dollars pay for this, and what does that do to the survivor’s income?” That’s a modeling question, and it’s the one we spend the most time on in retirement planning work.

Family matters too. Someone single without nearby family leans differently than someone with a strong local support network. And a quick honest note: family caregiving covers a lot of care in practice, but it lands hard on the caregiver, financially and otherwise. It isn’t something you can count on indefinitely.

What are the alternatives to a traditional policy?

Traditional standalone coverage has real drawbacks. Premiums can rise, and if you never need care the money is gone. A few alternatives worth knowing:

Hybrid policies pair life insurance or an annuity with a care benefit. Need care, it pays. Don’t, and your heirs get a death benefit. Premiums are often fixed, and it usually costs more upfront.

Self-funding means earmarking a slice of the portfolio for care and accepting that a long event could blow past it.

A hybrid of the hybrids. Some households insure the catastrophic tail with a smaller policy and self-fund the first year or two. You’re buying protection against the five-year case, not the one-year case.

On the product side, I’ll repeat something I say on the podcast a lot: insurance is not a good investment, and investments are not good insurance. They’re both important and they’re different things. They get confused easily, and sometimes I think they’re sold in a way that’s meant to be confusing.

We’re fee-only and we don’t sell insurance, so we have no stake in which way this goes. We model the tradeoff with you. If a policy makes sense, you take that to a licensed insurance professional who can shop it. Every contract is different, so read what you’re buying before you buy it.

Are long-term care insurance premiums tax deductible in Nevada?

Sometimes, within limits, and it’s rarely the reason to buy.

Premiums for a tax-qualified policy count as medical expenses. The IRS caps how much counts, by age, for 2026:⁵

•    Age 40 or under: $500

•    41 to 50: $930

•    51 to 60: $1,860

•    61 to 70: $4,960

•    71 and older: $6,200

Here’s the catch. Medical expenses only count to the extent they clear 7.5% of your adjusted gross income, and only if you itemize.⁶ Most retirees never get there. Treat the deduction as a bonus, not a reason.

In Nevada there’s no state income tax on the personal income of natural persons,⁷ so there’s no state deduction or credit stacked on top like some states offer. That cuts both ways and it’s a small piece of a much bigger Nevada advantage. We ran the numbers on that in how much you can save on taxes by retiring in Nevada instead of California.

One more piece people miss: benefits from a tax-qualified policy generally aren’t federally taxable. But if your policy pays a flat per-diem instead of reimbursing actual costs, the exclusion is capped at $430 a day for 2026, and anything above that is taxable unless your real costs were higher.⁸

When is the right time to buy?

Earlier than most people act, if you’re going to buy at all. Premiums climb with age, and a health change can make you uninsurable. Most buyers land in their mid-50s to mid-60s, when it’s still affordable and underwriting is still likely to go your way.

Waiting isn’t free. Every year the premium goes up and so do the odds of a diagnosis that closes the door. That’s not a reason to rush. It’s a reason to decide on purpose instead of letting it drift until the options are gone.

Let’s figure out where you land

This is one of those planning questions where the answer really does change person to person. If you want to think through whether coverage fits, or whether self-funding is the better call given your assets, book a free QuickFit call. Short conversation, no pressure, no sales pitch. We don’t sell insurance, so there’s nothing to pitch.

You can also run your own numbers with our retirement planning calculator and retirement withdrawal calculator, or see how we approach retirement planning and financial planning here in Reno.

Want the tax side of retirement first? Grab our free guide, The Retirement Tax Bomb, or read what the retirement tax bomb is and how to defuse it.

Frequently Asked Questions

Is long-term care insurance worth it?

It depends on your assets and family situation. It tends to fit people with savings worth protecting who couldn’t comfortably absorb a multi-year care bill. People with very few assets or very substantial wealth often have better options.

At what age should I buy long-term care insurance?

Most buyers are in their mid-50s to mid-60s. Premiums rise with age and a health change can make you ineligible, so waiting narrows your choices. Buying very early means paying premiums longer.

Does Medicare pay for long-term care?

Not for most of it. Medicare covers up to 100 days of skilled nursing after a 3-day inpatient hospital stay, and you pay $217 a day for days 21 through 100 in 2026. It doesn’t cover custodial care, which is the bulk of long-term care.³

How much does long-term care cost in 2026?

The most recent CareScout survey put the 2025 national median at $129,575 a year for a private nursing home room and $74,400 for assisted living.² Costs vary by location and level of care.

Does Nevada tax long-term care insurance benefits?

Nevada has no state income tax on personal income,⁷ so benefits aren’t taxed at the state level. Federally, benefits from a tax-qualified policy generally aren’t taxable, subject to the $430 per-day cap on per-diem policies for 2026.⁸

Can I just self-fund long-term care instead?

Many higher-net-worth households do. The key is making it a decision with numbers behind it rather than an assumption. Model the five-year case, not the average one, and check what it does to the surviving spouse’s income.

Sources

1. Administration for Community Living, “How Much Care Will You Need?” https://acl.gov/ltc/basic-needs/how-much-care-will-you-need
2. CareScout (Genworth) 2025 Cost of Care Survey, released March 2, 2026 https://investor.genworth.com/news-events/press-releases/detail/1054/carescout-releases-2025-cost-of-care-survey-results
3. Medicare.gov, “Skilled nursing facility (SNF) care” and “Nursing home care” https://www.medicare.gov/coverage/skilled-nursing-facility-care
4. Administration for Community Living, “Medicaid” https://acl.gov/ltc/medicare-medicaid-and-more/medicaid
5. IRS Revenue Procedure 2025-32, §4.27 (2026 eligible long-term care premium limits) https://www.irs.gov/pub/irs-drop/rp-25-32.pdf
6. IRS Topic No. 502, Medical and Dental Expenses https://www.irs.gov/taxtopics/tc502
7. Nevada Constitution, Article 10, Section 1(9) https://www.leg.state.nv.us/const/nvconst.html
8. IRS Publication 525 and Rev. Proc. 2025-32, §4.62 (2026 per-diem limitation) https://www.irs.gov/publications/p525

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This article is for educational purposes only. It is not personalized investment, tax, or legal advice, and it is not a recommendation to buy, sell, or hold any security, insurance contract, or annuity, or to pursue any particular strategy. The person described in the example is hypothetical and illustrative. They are not a client, the figures are not drawn from any actual account, and the example is not a projection or estimate of investment performance. Account balances in the example are held constant as a simplifying assumption; no rate of return is assumed or implied, and the tax cost of the conversions described is not quantified. Nothing here is a guarantee or assurance of any tax savings, premium reduction, or other result. Tax rules, Medicare premiums, and contribution and distribution limits change, and future law may differ materially from current law. Figures cited are 2026 amounts and were current as of publication. Alchemy Wealth Management does not provide tax or legal advice. Please consult a qualified tax or legal professional about your own situation.

Ready to see what this looks like for you?

Here’s the good news. If you’re reading this before 73, you still have the window, and that’s the whole ballgame! Your version depends on your balances, your ages, when you claim Social Security, and what your income looks like between now and 73.

Grab the free eBook. The Retirement Tax Bomb walks through how tax-deferred accounts build a future tax bill and the levers that defuse it.

Run your own numbers. Try our tax bracket calculator and retirement withdrawal calculator.

Or just talk it through. Book a QuickFit call. Short, no pressure, just to see whether we’re a fit.

More on how we approach tax planning, our post on whether RMDs can raise your Medicare premiums, and episodes on The Fiscal Physical Podcast.