Planning to Fund
Long-Term Care Expenses

Health care costs are rising—especially for retirees, and some may need long-term care. Learn the moves you can make to help prepare yourself.

Longer lifespans and rising health care costs are driving investors to control their financial exposure to uncovered care costs—particularly in retirement.

According to the U.S. Centers for Medicare and Medicaid Services, the U.S. spent approximately $4.1 trillion on health care in 2020, or nearly $12,530 per person.1 Overall spending rose 9.7% in 2020, faster than the pace of inflation or wage growth. As spending rises, patients are also shouldering a larger share of treatment costs—driving up out-of-pocket expenses. The elderly, who require the most care, often bear the brunt of the costs.

As the above statistics show, it is important to take steps to minimize your financial exposure to uncovered medical costs, which could potentially include long-term care expenses. However, unlike retirement planning where you are saving to afford a desired lifestyle for after your working years, planning for the less palatable aspects of aging can be more challenging.

Planning for Long-Term Care Costs

A report from the U.S. Department of Health and Human Services estimates that people turning 65 have almost a 70% chance of needing some type of long-term care services in their remaining years.2

One year in a private room in a nursing home costs approximately $109,026 today and is projected to reach $195,791 in 20 years.3 Even with a robust portfolio, you may have trouble handling such large costs with savings on hand.

Many adults are concerned about what rising health care costs could mean for their financial future. 55% of adults age 25+ are either unsure or unable to estimate their annual retirement health care costs.4

Should you encounter medical issues, the costs can sometimes be high. Some people, for example, may not be aware of the uninsured costs they’d face if they were to experience a major health event such as a stroke, which may require prolonged assistance.

Medicare Part A covers nursing facility care for a limited time, but only after a qualified hospitalization. However, Medicare will not pay for nursing homes when custodial care is the only care needed; nor will it pay for care for conditions such as Alzheimer’s disease.5 Patients suffering from Alzheimer's or other cognitive ailments often require hands-on assistance for many years.6

Help Protect Your Retirement Savings

By the time people reach their 30s, they tend to have a pretty good idea of the lifestyle they want to pursue, even in retirement. There are a number of ways to save for retirement with your future health care needs in mind.

Investors in their 30s or early 40s may weight their retirement-funding strategies toward a portfolio of mutual funds or a managed-account solution to provide upside exposure to the market. Given lower premiums for younger policyholders, long-term care insurance should also be a consideration.

Today, only a handful of insurers offer long-term care insurance, so another option may be life insurance with a long-term care rider, which allows families to tap into the benefits they would have received upon the insured’s death, while he or she is still alive and in need of care.

Another option for funding long-term care expenses is to withdraw or borrow money from life insurance policies or generate income from annuities. These options should be reviewed with your financial professional and tax advisor to understand how loans or withdrawals from insured solutions may impact future values of those products that may be earmarked for other planning goals as well as any potential tax ramifications from accessing these cash values.

Help Protect Your Finances

As health care costs continue to rise, it’s important to understand the options you have to help control your financial exposure to uncovered care costs. Your Morgan Stanley Financial Advisor has access to multiple long-term-care products from a wide variety of respected insurers and can help you choose the one that offers the optimal combination of cost and benefits.


1 Centers for Medicare & Medicaid Services -

2, “How Much Care Will You Need?” February 2020.

3 Genworth 2020 Cost of Care Survey, conducted by CareScout®, October 2021. Cost estimate based on 365 days of care. Estimates how much care might cost in future years based on 3% annual inflation.

4 The Nationwide Retirement Institute: 2021 Health Care Costs in Retirement Consumer Survey.

5, “Skilled nursing facility (SNF) care”, 2022.

6, “Alzheimer’s Stages: How the disease progresses”, April 2021.

Morgan Stanley Smith Barney LLC is not implying an affiliation, sponsorship, endorsement with/of the third party or that any monitoring is being done by Morgan Stanley Smith Barney LLC (“Morgan Stanley”) of any information contained within the website. Morgan Stanley is not responsible for the information contained on the third party website or the use of or inability to use such site. Nor do we guarantee their accuracy or completeness.

Morgan Stanley Smith Barney LLC is a registered Broker/Dealer, Member SIPC, and not a bank. Where appropriate, Morgan Stanley Smith Barney LLC has entered into arrangements with banks and other third parties to assist in offering certain banking-related products and services.

Investment, insurance and annuity products offered through Morgan Stanley Smith Barney LLC are: NOT FDIC INSURED | MAY LOSE VALUE | NOT BANK GUARANTEED | NOT A BANK DEPOSIT | NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY

Insurance and annuity products are offered in conjunction with Morgan Stanley Smith Barney LLC’s licensed insurance agency affiliates.

Since life insurance and long-term-care insurance are medically underwritten, you should not cancel your current policy until your new policy is in force. A change to your current policy may incur charges, fees and costs. A new policy may require a medical exam. Actual premiums may vary from any initial quotation. Surrender charges may be imposed and the period of time for which the surrender charges apply may increase with a new policy. You should consult with your own tax advisors regarding your potential tax liability on surrenders.

Withdrawal and distributions of taxable amounts from annuities are subject to ordinary income tax and, if made prior to age 59 ½, may be subject to an additional 10% federal income tax penalty. Early withdrawals will reduce the death benefit and cash surrender value.

Life Insurance policy loans and withdrawals will reduce the policy’s cash value and death benefit and may cause the policy to lapse. If the policy lapses, you may incur tax consequences. In addition, policy loan interest will be charged annually on any outstanding loan balance.

Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice. Clients should consult their tax advisor for matters involving taxation and tax planning and their attorney for matters involving trust and estate planning, charitable giving, philanthropic planning and other legal matters.

© 2022 Morgan Stanley Smith Barney LLC. Member SIPC. All rights reserved.

+ Expand - Collapse
CRC 4955566 10/22