The gap between retirement income and long-term care costs is widening rapidly. New research shows that what was once a difficult but manageable challenge through the 2010s has shifted in recent years, leaving financial advisors grappling with a growing affordability problem that is changing how they approach planning.
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For advisors, the shift isn’t theoretical. It’s showing up in client portfolios, family decisions and increasingly difficult trade-offs around care, location and legacy goals.
For much of the 2010s, income growth among older households often outpaced increases in long-term services and supports (LTSS) costs such as private nursing homes and adult day services. That trend has now reversed, according to new research from the AARP Public Policy Institute.
Between 2019 and 2024, the cost of the most commonly used services, particularly home care and assisted living, surged by nearly 50%, far exceeding the roughly 22% increase in median income for households age 65 and older.
The result is a clear and growing gap. In 2024, the median older household income of about $60,000 could barely cover a year of part-time home care and fell well short of assisted living or nursing home costs, which can exceed $70,000 and $100,000 annually, respectively.
For advisors, that means older assumptions about “manageable” care costs may no longer hold.
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Modeling for long-term care inflation
Part of the challenge is structural. As advisors model retirement outcomes, long-term care sits in a category of expenses that consistently outpaces general inflation and income growth.
Zachary Bachner, a financial advisor at Summit Financial Consulting in Sterling Heights, Michigan, builds that reality directly into planning assumptions.
“Along with college costs and other medical costs, we use a higher-than-average inflation rate for our long-term care forecasts,” said Bachner. “We typically use 2.5% for general inflation and use 5% for college and medical inflation.”
At the same time, Bachner said he tends to assume a more modest 3% income growth rate.
“This means that income should outpace standard inflation, but it would lag the college and medical inflation inputs,” he said. “This 2% lag is how LTC costs could outpace the average household income over time, especially when forecasting out until a client is age 90-plus. And with these assumptions, the gap will only widen over time.”
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Middle-income clients feel it most
While affluent clients may have more tools to absorb rising costs, the pressure is most acute among middle- and lower-income retirees.
Joon Um, a tax advisor and CFP at Secure Tax & Accounting in Beverly Hills, California, said the trend is becoming increasingly visible in client conversations.
“For clients with fewer assets, it really comes down to planning early and being realistic,” he said. “We talk about what care might cost locally, building some savings for it and having honest conversations with family.”
That emphasis on early planning is becoming more common across advisory firms, even for younger clients who are decades away from retirement.
“Rising long-term care inflation requires a comprehensive, early and family-centered approach that blends proactive planning with creative, multigenerational solutions,” said Mark Cannon, president of Dallas-based private wealth advisory firm Luminate. “We begin planning conversations earlier than most expect: often when clients are in their mid-30s.”
Starting early, Cannon said, gives advisors time to walk clients through both the statistical likelihood of needing care and the financial consequences of being unprepared.
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Working with an imperfect set of options
As the income-cost gap widens, advisors are increasingly forced to pull from a limited and often imperfect set of strategies to try to plan around long-term care needs.
Savings and self-insurance remain the first line of defense, but the data underscores how fragile that approach can be. Median financial assets for households age 75 and older sit around $50,000, enough to cover roughly a year of home care, or far less in institutional settings.
Insurance solutions are another lever, though not always an easy sell.
Bachner said that he rarely recommends traditional long-term care insurance due to client resistance to “use it or lose it” structures. Instead, he looks to hybrid approaches.
“We typically look at either a life insurance policy or an annuity with an LTC rider,” he said. “The life insurance would pay out a death benefit, and the annuity would provide an account value death benefit, so these funds are not lost if the LTC benefit is not utilized.”
In some circumstances, advisors like Cannon also extend LTC planning to the client’s children as a way to tackle costly premiums that can extend beyond the client alone.
“We frequently involve adult children and encourage them to contribute to premiums when appropriate, especially since many hybrid LTC solutions offer substantial return of premium features,” he said. “We also explore alternative strategies, such as life insurance on parents to reimburse children for future caregiving costs or to create a guaranteed estate value if LTC needs never arise.”
Relocation is another consideration for clients struggling to cover LTC-related costs, which can vary dramatically by state. In the highest-cost areas, LTC expenses are at least double those in the lowest-cost regions, according to AARP’s research.
“We discuss relocation as a legitimate cost management strategy when appropriate, particularly when moving brings clients closer to family or to lower cost care markets,” Cannon said.
But in cases where a client would be moving away from family, Bachner said relocation may not make sense.
AARP research shows that unpaid family caregivers remain the backbone of the long-term care system, contributing hundreds of billions of dollars in economic value annually. Advisors say that has a major impact on planning.
“We typically do not recommend relocation as this could cause the client to move away from loved ones who could provide in-home care for them,” he said. “Having family around is one great way to delay the more expensive LTC costs.”
