One Retirement Expense That Could Drain Your Nest Egg

Retirement planning often focuses on the big, visible expenses: housing, travel, and daily living. But there's one cost that most people simply don't budget for, and it has the power to drain a nest egg completely. The most dangerous retirement expense isn't a vacation or a new car-it's long-term care.

The problem starts with a common misconception. Many assume Medicare will cover these costs, but it typically does not. Medicare only pays for care that is medical in nature. The kind of help most people need later in life-assistance with bathing, dressing, eating, or moving-is considered custodial care, and Medicare generally won't pay for it. In reality, Medicare covers only about 60% of total healthcare expenses, leaving retirees to pay for the rest, including long-term care out of pocket.

The numbers make the risk clear. The average cost for a private nursing home room is over $127,750 a year, while a semi-private room runs about $112,420 annually. These are not one-time fees; they are annual costs that can stretch for years. And the likelihood of needing this care is high. Roughly 70% of adults turning 65 will need some form of long-term care during their lifetime.

This combination of high probability and massive cost creates a critical vulnerability. If you need extended care, the savings you've worked so hard to build can be depleted quickly. Even with a substantial nest egg, covering these expenses for five years or more could leave you with little to nothing for other needs or to pass on. The risk isn't just about the money-it's about the potential for financial strain and tough decisions for your family. Planning for this overlooked expense isn't a luxury; it's a necessity to protect your retirement security.

Why This Expense Breaks Most Plans

The reason long-term care is so uniquely damaging to retirement finances comes down to three powerful forces: a coverage gap, relentless inflation, and sheer scale. Most retirement plans simply don't account for this perfect storm.

First, the coverage gap is fundamental. Medicare, the cornerstone of retirement healthcare, only pays for medical services. The kind of help most people need-assistance with bathing, dressing, or eating-is called custodial care and is not covered. This means the costs for home health aides, assisted living, or nursing homes are typically paid out of pocket from your savings. It's like having insurance for your car's engine but not for the cost of a tow truck when you break down.

Second, these costs grow with inflation, making today's numbers a dangerous underestimate. The national average for a semi-private nursing home room is $112,420 a year. If inflation averages 2.54% annually, that same room could cost nearly $186,000 in 20 years. This isn't a one-time adjustment; it's an annual increase that compounds over time, eroding your savings faster than you might expect.

Put these together with the sheer scale of need, and the damage becomes clear. A healthy couple retiring at 65 might need about $600,000 in savings just for healthcare costs over 25 years. This figure includes not just long-term care, but also Medicare premiums, deductibles, prescriptions, and other medical expenses. The long-term care portion alone could consume a massive chunk of that total, especially if it's needed for several years. When you combine the high probability of needing this care-roughly 70% of adults turning 65 will need some form-with its inflationary growth and the fact that it's not covered by standard insurance, it creates a financial vulnerability that most standard retirement plans are not built to handle. It's an expense that sneaks up on you, grows silently, and can drain your nest egg completely.

Building a Realistic Plan: Options and Trade-offs

So, what's the investor's playbook for this hidden drain? You have three main options: buy a hedge, save aggressively, or self-fund. Each comes with its own set of trade-offs between upfront cost, coverage, and personal risk tolerance.

The most direct hedge is long-term care insurance. It's designed to cover those custodial costs that Medicare leaves behind. But the price tag varies wildly. A policy's premium depends heavily on your age, health, and the specific details of the coverage you choose. Data from 2025 shows premiums can range from low to high costs for the same age group, and the optimal time to shop is often in your 50s when you're likely healthier and can lock in a more reasonable rate. Waiting until you need care is a costly gamble, as premiums can become prohibitive or coverage may be denied. For many, the insurance is a way to protect a significant portion of their savings from a single, catastrophic expense.

A common rule of thumb is to save 10-15% of your annual income for long-term care. This is a starting point, not a guarantee. It assumes you can consistently set aside that money and that the savings will grow at a rate that outpaces inflation. In practice, it's a form of self-funding that requires discipline and a substantial rainy day fund. The risk is that this fund gets depleted, leaving you to cover the full cost out of your retirement savings or, worse, forcing you to rely on family.

The alternative-self-funding entirely-carries the highest personal risk. It means you're betting that you either won't need long-term care or that you can afford it without touching your core retirement nest egg. This approach requires a very large emergency fund and a high tolerance for financial uncertainty. The evidence shows the stakes are high: about 45% of retirees could run out of money in retirement, and overlooking a major expense like long-term care is a key reason why. Self-funding works only if you're exceptionally healthy and disciplined, but it leaves you vulnerable to a financial shock.

The bottom line is a trade-off. Long-term care insurance costs you money now for a guarantee later. Saving aggressively costs you spending power now for a potential cushion. Self-funding costs you peace of mind now, with the risk of financial strain later. The right choice depends on your health, your savings, and your appetite for risk. For most, a hybrid approach-perhaps a smaller insurance policy combined with a dedicated savings fund-offers a balanced way to manage this unavoidable expense without betting the entire nest egg on a single outcome.

Catalysts and What to Watch

The real test for any long-term care plan isn't the numbers on paper; it's how it holds up against the unpredictable events of life. The key catalyst that will determine the impact of this expense is the onset of a chronic illness or disability that requires assistance with daily activities. This isn't a distant possibility-it's the primary trigger for needing care. As the evidence shows, roughly 70% of adults turning 65 will need some form of long-term care, and those with conditions like heart disease or dementia are at significantly higher risk. The moment that need arises is when your plan must work.

Two other factors will directly shape the outcome: inflation and your own life changes. Inflation is a silent, relentless force that erodes the value of your savings. The national average for a semi-private nursing home room is $112,420 a year. If inflation averages 2.54% annually, that same room could cost nearly $186,000 in just 20 years. This means your plan's future coverage must account for this growth, or you'll find yourself underfunded. Monitoring inflation rates isn't just economic news; it's a direct check on your plan's relevance.

Finally, your plan needs regular review. Health status and care needs can change dramatically over time. A plan that was adequate five years ago may be insufficient today. The evidence suggests that about 45% of retirees could run out of money in retirement, and overlooking a major expense like long-term care is a key reason. To stay proactive, review your plan every 5-7 years or after any major life event-like a health diagnosis, a change in family situation, or a significant shift in your savings. This isn't about fear; it's about ensuring your financial cushion is still the right size for the reality you face.

The bottom line is vigilance. The catalyst is personal health. The pressure is inflation. The solution is regular, thoughtful review. By watching these three fronts, you turn a hidden drain into a manageable part of your retirement journey.