One Retirement Expense That Can Wipe Out Your Savings

Most people budget for the basics: housing, food, and medical care. But there's one retirement expense far too many overlook, and failing to plan for it could seriously upend your finances. That cost is long-term care.

The risk is severe because Medicare, the government health plan for seniors, only covers care that is medical in nature. It does not pay for custodial care-help with the daily tasks of living like bathing, dressing, and eating. This is the kind of support often needed in a nursing home or from a home health aide. In reality, that leaves you on the hook for these costs out of your own pocket.

The numbers show why this is a potential financial landmine. The average annual cost for a private nursing home is $127,750. That's more than $10,000 a month. If you need this level of care for just a few years, it can quickly deplete your retirement savings. And even that savings might not be enough to cover the full cost, leaving you at risk of financial ruin.

The bottom line is that long-term care is not a distant possibility; it's a real and expensive part of retirement planning. Without a strategy, it can wipe out the nest egg you've worked so hard to build.

Why This Expense is So Hard to Plan For

The challenge with budgeting for long-term care isn't just the high price tag. It's a mix of deep-seated misconceptions and powerful psychological barriers that make the problem feel invisible until it's too late.

First, there's a widespread and dangerous myth. Many assume Medicare will cover the costs of a nursing home or home health aide. In reality, Medicare is a medical insurance plan, not a long-term care provider. It only pays for a short period of skilled nursing care following a hospital stay-typically up to 100 days, and only if you meet strict conditions. The kind of help people need most, like assistance with bathing, dressing, and eating, is called custodial care. That's the kind of support Medicare does not cover, leaving you responsible for the full bill.

Then there's the mental hurdle. Long-term care is intrinsically linked to aging and health decline. Thinking about needing help with daily tasks is uncomfortable and unsettling. It's a topic most people actively avoid, a kind of "out of sight, out of mind" reflex. This avoidance makes it incredibly hard to sit down and say, "I need to budget for this," because the expense is tied to a future that feels distant and unpleasant to contemplate.

Finally, the sheer scale of the potential bill makes the problem feel impossible to solve. The average cost for a private nursing home is $127,750 a year. That's over $10,000 a month. For many, that number is so large it triggers a sense of paralysis. It's easier to think, "I can't possibly save that much," than to break it down into manageable steps. This feeling of impossibility often leads to inaction, which is exactly what the data shows: about 45% of retirees could run out of money in retirement, in part because of overlooked expenses like this one.

The bottom line is that the barriers are psychological as much as financial. You have to overcome the myth that Medicare covers it, face the uncomfortable reality, and then tackle the daunting size of the bill. It's a tough mental lift, but one that's essential for protecting your retirement security.

Practical Steps to Build a Financial Safety Net

The good news is that you can build a financial safety net for long-term care. It starts with moving from fear to action. Here are concrete steps to protect your retirement savings.

First, consider long-term care insurance. It's a tool designed specifically for this risk. A policy could help cover the average annual cost of a private nursing home, $127,750, or other services like home health aides. The key is to think of the premiums as a necessary, ongoing expense in your retirement budget, not a one-time fee. Many experts suggest shopping for a policy in your 50s, when you're more likely to get a reasonable rate based on your health. But it's not too late if you're in your 60s; you may still qualify. You can even use funds from a health savings account to pay those premiums, which can be a smart way to use money you've already saved.

Second, explore alternative funding strategies. If insurance isn't the right fit, you can look at your own assets. One option is to use a portion of your home's equity to create a dedicated care fund. A reverse mortgage, for example, allows you to convert some of that built-up value into cash while staying in your home. This creates a financial cushion you can tap if long-term care becomes necessary, without having to sell the house in a hurry.

Finally, build a flexible retirement budget. This is the foundation of resilience. Your plan should include a contingency for unexpected health-related expenses, not just long-term care but also higher-than-expected medical bills. This means leaving room in your monthly cash flow for surprises. As the data shows, nearly one in three retirees spend more than they can afford, and many face budget-straining surprises. By building that flexibility in from the start, you create a buffer that can absorb a major expense without derailing your entire retirement.

The bottom line is that long-term care is a risk you can manage. It's about making a plan, budgeting for the costs, and having multiple tools in your kit. By taking these practical steps, you shift from being vulnerable to being prepared.