The fantastically prolific and always insightful Center for Retirement Research at Boston College (CRR) recently released a study focusing on the actual and perceived risks of paying for health- related expenses in retirement.1 Using survey research, CRR examined the differences in perceptions and knowledge of both Americans and their financial advisers.
The title asks an important question: “Do advisers help?”
What Can Go Wrong?
As a successful adviser who’s spent more than two decades working with the vast American middle class, I know you face one real financial risk. It’s the prospect of paying rent in the wrong kind of hotel for an extended period. (I developed this idea early in my career when it dawned on me that the daily cost of staying in a long-term care facility in which you had a roommate and an old TV and a shared bathroom cost more than a night at the Ritz Carleton in many cases.) This is the only thing, in my experience, that wipes out middle-class wealth.
All good advisers know this. I suspect most other Americans do as well. If you’re reading this and you certainly do. The questions for you and others include:
How likely is the risk?
Can it be transferred for a reasonable price to a third party?
What do governments offer in terms of social insurance?
What other, non-insurance risk mitigation strategies can I use to preserve my wealth?
I want to use the Center’s study as a base from which to examine each of these questions and explore the potential opportunities that the answers offer you. This exercise may allow you to put a plan in place that best meets your needs. This is a complex topic so I break it into a two part series I’ll address the first three questions in this piece. I’ll focus on the fourth in an article to follow.
Focus on the Consequences. Not the Probability
How likely is it that an American retiree will end up needing long-term care? How likely are you to face a financially catastrophic illness? The Center’s study reports that 80% of Americans will need long-term care services. It reports that four in 10 of us will have high-intensity needs that last for more than a year.
This is consistent with other estimates you’ll see bandied around in the personal finance press. If this is true, it means that a married couple could expect at least one of their four parents to spend more than a year under intense custodial care.
I’m not convinced that this accurately represents the true probability. The Kaiser Family
Foundation, a leading research and advocacy organization in this field, reports that that only six
million Americans are currently receiving what it calls long-term services and support care. This is roughly 10% of the 58 million Medicare participants over age 65. 2
Something seems to be off here. And I think the something that is off is what’s classified as long- term care. If you have a knee replaced and spend a week or two in a rehab facility, is that long-term care? Perhaps, and I believe it’s counted in most numbers. But it’s not financially catastrophic, and it is paid by Medicare. It would also, I must note, not be a long enough stay to trigger traditional long-term care insurance policies.
The percentage of long-term care insurance contracts that actually pay would be an incredibly useful gauge of actual risk. I can’t find a recent citation of this anywhere.
Ultimately, the probability may not really matter to you. The point, after all, is not merely the chance of a horrible thing happening, but what are the consequences to you and your loved ones if it does? I put plenty of long-term care insurance policies in place for my clients using just this reasoning.
This brings up the second question. Can this risk be transferred to a third party for a reasonable price?
Those Were the Days
Imagine this possibility. You plan to retire in a decade. You project you’ll have investments at roughly $1 million, two Social Security payments totaling $60,000, and a $12,000 pension. You could easily pay your bills and manage most risks with asset allocation and perhaps an annuity that could, if needed, provide a lifetime of retirement income. You have three children. Two are financially independent. Your youngest daughter has special needs and, although most of her needs were provided for by your state government, she relied on you for life’s extras and her housing. As a result, dying broke terrifies you.
The insurance industry used to leap into the breach with terrific solutions. In some states, you could, at an affordable price, purchase a policy that, if needed, not only paid the bills but also allowed you to keep a dollar of investments for every dollar the policy paid and still, eventually, have the state pick up the tab. These are called Partnership policies. They are still available in some states, but the cost places them out of middle-class reach.
This took care of the dreaded outlier cases of more than five years of expensive care. Your house is protected for your daughter due to her disability. Better yet, if you elected a return of premium rider, if you didn’t use your policy, you didn’t lose by winning. Every dollar you paid in was returned to your beneficiaries. Your heirs lost the gains that money would have made if invested. That was the true cost of the policy.
This used to be standard planning and, believe it or not, it was often a struggle to get people to see the value in it.
We’ve Got New Policies
This, it turns out, was the peak product suite for long-term care protection. And it’s now long gone, killed by rock bottom interest rates among other actuarial considerations. If you have an old policy, hang onto it. But if you can work a financial calculator, you’re not likely to sign any new application for standard long-term care insurance given today’s prices.
The insurance industry has fallen back to hybrids. These policies are called hybrids because they add a long-term care rider to either a life insurance or an annuity contract. They are a useful innovation, and, in some cases, can play an important role in protecting your wealth. But there are always tradeoffs. And the benefit of knowing you’ll get a life insurance payment regardless of when you pass away means less protection for the large monthly long-term care bill.
Clearing Up the Confusion
So if the bill isn’t sent to a private insurer, who is likely to pay? This gets to the third question of what social insurance programs are available to provide support.
The study notes that 45% of Americans believe Medicare will pay for long-term care. This is wrongheaded, as all experts know that Medicare does not pay for custodial long-term care services after, at most, a 100-day stay.
Who’s Picking Up the Tab?
The point is that we Americans have a false confidence that we’re covered by Medicare and the premiums we pay to enjoy the program.
Are we wrong? Medicare may pay for the first 100 days and 100% of rehabilitation. How many admissions that are classified as long-term care are completed in this period? I can’t find data to answer this question.
The study also notes that only 6% of Americans believe Medicaid will pay. Yet Medicaid picks up 61% of the total tab. Medicaid is in fact the fallback long-term care financing plan for all Americans. We pay for it through taxes at the federal and state levels.
Some of the confusion is simply a conflation of Medicare and Medicaid. They sound similar and perhaps few non-health policy experts understand the difference. Some people who say “Medicare will pay” mean “Medicaid will pay,” which it actually does.
The problem you should have with this, however, is astutely noted by the same authors in another study. “Medicaid is a safety net, but not an effective form of insurance,” the authors write, “since its deductible is virtually all a household’s assets.” 3
I will address ways to avoid this deductible in my next piece.
About the author: Michael Lynch
Michael Lynch, CFP®, is a financial planner with the Barnum Financial Group in Shelton, Connecticut, and Cape Coral, Florida, and the author of three books, “It’s All About The Income: A Simple System for a Big Retirement” (2022), “Keep It Simple, Make It Big: Money Management for a Meaningful Life” (2020), and, most recently, “Taking Care of Your Future: The Nurse’s Guide to Retirement” (2024). You can find more articles and videos at michaelwlynch.com. He can be reached at mlynch@barnumfg.com or 203-513-6032.
Securities and Investment Advisory services offered through qualified registered representatives of MML Investors Services LLC. Member SIPC. 6 Corporate Drive. Shelton CT 06484. Tel: 203-513-6000 CRN202805-8733306
1 Chen, Anqi, Alicia H. Munnell and Gal Wettstein. “Do Older Adults Understand Health-Care Risks, and Do Advisors Help?” Center for Retirement Research at Boston College, January 2025, Number 25-2. https://crr.bc.edu/do-older-adults-understand-healthcare-risks-and-do-advisors-help/
2 Priya Chidambaram and Alice Burns, “10 Things About Long-Term Services and Supports (LTSS)” July 8, 2024. https://www.kff.org/medicaid/issue-brief/10-things-about-long-term-services-and-supports-ltss/ 3 Chen, Anqi, Alicia H. Munnell and Gal Wettstein, “How Do Retirees Cope with Uninsured Healthcare Costs?” Center for Retirement Research at Boston College, February 2025, Number 25-4. https://crr.bc.edu/how-do-retirees-cope-wit