Will you need long-term care in retirement? Most of us haven’t asked the question or planned for the possibility.

Washington has long been in a state of denial on the topic, too. Policymakers have been warning that we need a national system for funding long-term care, but conservative opposition to raising taxes to fund it has stopped these efforts in their tracks.

Now, we’re at a collision point: The cost of care is jumping at triple the rate of inflation as rising demand meets inadequate supply.

Medicare covers most medical care, but it doesn’t pay for daily living needs—things like bathing, dressing, using the toilet, shopping, and taking medications. As a nation, we don’t have a comprehensive, sensible approach to paying for the services that help people execute those tasks, typically referred to as long-term supports and services.

Here’s a look at the trends driving the LTSS perfect storm and some planning options that can help you navigate it.

A Look at the Long-Term Care Labor Shortage

The number of people aged 85 or older will nearly double by 2035, according to the US Census Bureau. This population increase comes at the same time that the care industry is facing a shortage of workers.

In part, the labor shortage is driven by low wages. The median hourly wage for all direct care workers was $16.72 in 2023, lower than the wage for all other jobs with similar or low entry-level requirements, according to an analysis by PHI, a nonprofit research and policy organization.

The policy outlook is getting worse, too. Experts fear the labor shortage will be exacerbated by the Trump administration’s immigration crackdown. Immigrants make up 28% of the long-term care workforce—a figure that has been rising in recent years, according to KFF, a health policy research group.

Further, the supply of care will also be affected if Congress approves cuts to Medicaid funding, as proposed in the bill passed by the House. Medicaid covers 61% of all long-term care, according to KFF; cuts would force providers to reduce the number of Medicaid patients they accept, increase private pay rates, or close facilities, according to experts who study the field.

The shortage will only worsen as demand for new workers grows in the decades ahead. Home and residential care providers are expected to add 817,000 new jobs by 2032 for direct care roles, according to an analysis of federal employment projections by PHI—the most new positions of any job category across the US economy.

The Risk That Long-Term Supports and Services Pose to Your Retirement Plan

Already the cost of care is jumping. In 2024, the cost of some LTSS services rose as much as 10%, according to CareScout, a division of the Genworth insurance company that publishes an annual study about the cost of care.

Yet most Americans have misconceptions about how they might pay for LTSS.

KFF polling shows that 23% of all adults—and 45% of those age 65 or older—incorrectly believe that Medicare will cover their time in a nursing home if they have a long-term illness or disability. Fewer than half of adults said they’ve talked seriously with loved ones about how they would obtain or pay for long-term care. And among near-retirement individuals, just 28% say they have set aside money for it.

That lack of financial planning for LTSS might be making your retirement plan look rosier than it is. New Morningstar research finds that when LTSS costs are included, 41% of households are projected to run short of money in retirement, compared with just 26% when those costs are excluded. In many cases, LTSS might be the most significant risk to retirement-income adequacy.

“A great deal of the focus in financial planning is placed on things like longevity risk and sequence of returns risk,” says Spencer Look, associate director of retirement studies for Morningstar Investment Management LLC. “But this is an area where there’s a great deal of confusion about who pays.”

The risk to a plan varies by life circumstances, the research found. Fifty-two percent of single women were projected to fall short when LTSS costs are factored in, for example. “It’s well known that women live longer, and single women tend to have less financial resources than those who are part of a couple,” Look says.

Part of the problem is that it’s nearly impossible to know what your LTSS costs will look like, or whether you will need care at all.

The Morningstar study found that roughly 43% of baby boomers will need LTSS in retirement. That squares with other findings: For example, the Center for Retirement Research at Boston College finds that about one-fifth of retirees will require no long-term care support, and that 20% are likely to experience a severe need. Between these extremes, 25% will have low needs and 37% will have moderate needs.

Many people wind up turning to informal care from family members or friends. Sixty-four percent of caregiving hours are provided by children, spouses, other relatives, or nonrelatives, according to CRR. But that can have financial consequences for the caregivers: Time away from work often translates to lower career earnings, fewer Social Security benefits, and lower levels of savings.

Don’t expect a solution from Washington anytime soon.

In Washington, lawmakers have tried to address long-term care risk over the years with various proposals for expanded coverage. Some have proposed expansion of Medicaid or Medicare, while others focus on shifting care from institutional to home-based settings. Plans that involved new taxes have failed owing to Republican opposition. The most current proposal is the Well-Being Insurance for Seniors to be at Home Act, sponsored by Rep. Tom Suozzi (D-NY). The bill has some bipartisan support, but hasn’t advanced on account of a lack of agreement on a funding mechanism.

Some states are addressing LTSS risk with programs of their own. Most notably, Washington state launched the Wa Cares Fund, a social insurance program funded by a 0.58% payroll tax on wages. Other states have attempted to address the problem with Medicaid reforms or tax credits for the purchase of private LTSS insurance.

6 Options for Funding Long-Term Care

Against that backdrop, how should you think about protecting yourself against the risk of a long-term care need? Here are a few options.

Spend down to qualify for Medicaid. The rules on the level of assets and income you can retain vary from state to state.

The private long-term care insurance market has shrunk dramatically, with a diminishing number of providers offering policies. So-called “hybrid” policies that combine life insurance with a long-term care benefit have been gaining traction in recent years. These policies make a long-term care benefit available through a death benefit that can be tapped early to pay for a qualifying long-term care need.

In a column I contributed to The New York Times, I offered some details on what’s on offer in the private insurance market. The policies generally cost $16,000-$18,000 per year, and you’ll need to pass a medical exam to qualify—something that’s tougher to do for older would-be buyers who are more likely to have chronic conditions.

Self-funding often makes the most sense for affluent households, especially single people who don’t have children and are not leaving money to heirs.

How much should you set aside? Carolyn McClanahan, a physician and certified financial planner in Jacksonville, Fla, says the answer depends on factors like health status, desired care scenario, and personal financial situation. For clients with health issues, she suggests planning for two to three years of long-term care needs, and up to five years for those at higher risk of dementia or with good health and longevity prospects. Another key consideration is whether the funds might need to cover one person or two.

Health Savings Accounts offer an attractive option for people able to fund the accounts at maximum levels and avoid drawing them down prematurely to pay for healthcare at younger ages.

The House budget bill now under consideration by the Senate includes some liberalization of HSA rules that could make these accounts more useful as a way to save for an LTSS need. The changes include higher contribution limits and allowing individuals age 65 or older and enrolled only in Medicare Part A (not Part B) to make HSA contributions.

Guaranteed income sources can play a critical role, as a defined-benefit pension can be used to fund care. Social Security can also be a valuable resource—and guarding against a long-term care risk is one of the best arguments for maximizing your benefit by delaying your claim as long as possible.

Home equity can be used to fund care, and it’s often overlooked as a financial resource.

One strategy is to downsize in the town or region where you currently live. Many retirees have more space than they need, and the burdens of taxes, insurance, upkeep, and utilities can be costly. Another choice is to move to a new location that reduces your expenses.

If moving is not part of your plan, a reverse mortgage offers another option.

These loans are tough to understand, and they do come with high fees and some risks that have generated a lot of deserved bad press over the years. The big one is foreclosures: The loans do not require monthly repayments, but borrowers can default if they fail to make property tax and insurance payments, or make repairs to their homes.

But federal regulation of reverse loans has been tightened in recent years to reduce these risks. And if you are dead-set against moving out of your home and need the income, a reverse loan can be used safely.

What’s the best option for you? That depends on your personal financial circumstances. But the LTSS perfect storm is coming, one way or another—so it’s best to do your homework and make a plan now.