How Much Should You Budget for Long-Term Care?

Many older adults have concluded that they’re better off covering long-term care expenses out of their own pockets if they end up needing it. Years of rising premiums on long-term care insurance, along with stories of poor claims experiences and a dwindling number of insurers who are writing new policies, have spooked consumers out of purchasing insurance. Meanwhile, the equity market has soared, plumping portfolios and making self-funding long-term care expenses look a lot more doable.

But how much should you set aside if you plan to cover long-term care expenses out of your own portfolio? And how much should you assume that care provided in your own home, which most people prefer, would run? To come up with a reasonable estimate, you need to factor in three main items: the cost of care, the duration of the care needed, and the inflation rate in long-term care services.

Cost of Care Depends on Care Level

Genworth’s Cost of Care study is a consistently useful resource for people looking to ballpark the cost of care. Based on thousands of surveys of long-term care providers, the survey provides average costs based on type of care. The 2024 national averages were as follows:

• Nursing home care, private room: $127,750
• Nursing home care, semiprivate room: $111,325
• Assisted living facility: $70,800
• In-home care: Home health aide: $77,792
• In-home care: Homemaker services: $75,504

Nursing home care is the most intensive level of care, for people who need total assistance with personal care as well as chronic health conditions. Assisted living is care for people who can handle some of their activities of daily living (dressing and eating, for example) but might need help with others, like showering.

On the in-home front, home health aides provide some level of hands-on care, like showering, whereas homemaker services are “hands-off,” providing assistance with household jobs like cooking and laundry.

Of course, it’s impossible to know in advance whether you’ll even need care, let alone the type and intensity of the care you’ll need. People’s care needs often progress along a continuum. The starting point might be a light level of help that a spouse or adult child provides, progressing to hiring in-home help to do meal prep and assist with showering, then moving into a more intensive level of assistance, either in-home or in a facility.

Is Home-Based Care a Bargain?

At first blush, in-home care appears to be a relative bargain in the Genworth/CareScout survey, especially given that most people would prefer to receive care in their homes rather than in a facility, both for comfort as well as to live with a spouse or other family member.

But those figures carry some major caveats. First, they assume just 44 hours a week of in-home care. Assuming the $34 average per hour rate for a home health aide in the Genworth research, someone who needed 24-hour care seven days a week might pay close to $300,000 for a year’s worth of such care. (Caregiving agencies frequently provide a cost break for 24-hour care versus paying by the hour, so the actual outlay may be a bit lower.) People who need just some care—for example, help for a few hours a day to shower or prepare meals—may find in-home care an attractive option. But for those who need regular, ongoing care, receiving that care in a facility will most certainly be more affordable; in-home care in those situations is a luxury good.

Additionally, it’s important to note that people receiving in-home care must also shoulder the costs of maintaining the household—mortgage or rent, insurance, home maintenance, taxes, food, and utilities—on top of the cost of care. If your household carrying costs were $40,000, for example, they would stack on top of the care costs.

In my book How to Retire, financial planner and medical doctor Carolyn McClanahan says that seven to eight hours of care per day is usually the “breakpoint” for deciding whether home-based care or care in a facility is the better bet financially. Care needs over that level will tend to make care in a facility a better bet financially than remaining in home. Of course, people with lots of financial assets might decide they’d like to receive in-home care for the duration, regardless of the expense, but they need to plan accordingly.

For planning purposes, it’s a smart strategy to assume that you’ll likely take a blended approach to receiving care: You might plan for a light level of home-provided care for a year or two, moving into institutionally provided care later when care needs intensify. Just be careful to avoid putting too much precision around these estimates, because you can’t predict how your health and care needs will play out.

Geography Is a Major Swing Factor

In addition, Genworth’s figures are national averages, but costs can vary widely based on geography, with long-term care in large metropolitan areas being significantly more costly than rural ones. For example, a year in a private room in a nursing home in Monroe, Louisiana, averaged $67,525 last year (the cheapest I saw), versus $180,675 for the same type of care in the New York City metropolitan area. In my spot check, the cost of a private room in a nursing home in many other geographic locales fell somewhere in between, often in the $110,000-$130,000 per year ballpark.

If you want to put an even finer point on the expected cost of care, you can inquire about pricing at facilities in your area or rates at caregiving agencies (for in-home care). Of course, a lot could change between now and the time you need care, so here again, don’t get too carried away with precision. But I consider it a best practice to do a bit of long-term care due diligence in advance and communicate your wishes to your loved ones about the how and where of your care rather than leaving it to them to research it on the fly.

Duration of Care

As with the level of care that you’ll need, there’s no telling in advance how long you might need care. Data from the Centers for Disease Control indicate that the typical duration of long-term care usage is two years, with just a year of that being paid care. (The other year’s worth of care would presumably be covered by unpaid caregivers, often spouses.) But as discussed here, the Center for Retirement Research notes that about a fourth of people age 65 and older will have a care need that it classifies as “severe,” meaning that an individual needs care for three years or more and/or requires a high level of assistance with multiple activities of daily living. (The CRR research also included both paid and unpaid care.) Research from T. Rowe Price paints a more sanguine picture about the likelihood of having very high long-term care expenses late in life.

Your health is an important input when determining the duration of the care need that you might need. Perversely, this is one area where being in good health isn’t a benefit, at least from a financial standpoint. McClanahan says that she typically budgets two to three years’ worth of long-term care outlays for clients who are in average health, and five years’ worth for clients who are in good health. That’s because longevity correlates neatly with needing an extended run of long-term care.

What About Inflation?

Once you’ve come up with a ballpark of how much care is apt to cost annually as well as how long you’re apt to need it, the next step is to factor in how much those costs are apt to increase between now and the time you’re likely to need long-term care. Like this whole exercise, factoring in rising costs isn’t for the faint of heart. As Mark Miller notes in this article, the combination of a rapidly aging population and a caregiver shortage has driven up the cost of care, and that’s apt to get worse before it gets better.

Bureau of Labor Statistics data indicates that the inflation rate in long-term care and adult day services was 4.9% between 2023 and 2024. Over the past decade, those expenses have increased at a 3.7% average rate.

The Genworth data put an even finer point on long-term care inflation, decomposing inflation rates by type of care and geography. In 2024, for example, nursing home care (private room) increased by 9% from the year prior. The cost of care provided by a home health aide clocked in at just 3%, in line with the general inflation rate. Users can also look at long-term care inflation by geography to incorporate the supply/demand factors at play in the long-term care space in their region.

Bringing It All Together

Armed with these inputs, you can begin to get your arms around a reasonable estimate for long-term care costs. You may come away convinced that purchasing some type of insurance is a better bet than self-funding, given what the outlays amount to with a 5% or higher inflation rate.

There are a couple of countervailing positives to bear in mind, however. The first is that if you invest your long-term care fund in a balanced portfolio, its investment gains will help offset or even mitigate altogether the long-term care inflation. Additionally, retirees typically have some nonportfolio income coming in regardless, usually from Social Security and/or a pension. Those nonportfolio cash flows reduce the amount you’d need to set aside for long-term care, as discussed here. Finally, retirees who are sitting on home equity might consider tapping it, either through a reverse mortgage or selling their home outright, to help cover long-term care expenses.