Beyond returns: The threat and opportunity of long-term care

As financial advisors, you are masters of optimization, maximizing returns, minimizing taxes and fine-tuning asset allocation. But the greatest risk to a well-crafted plan is long-term care, not a market correction.

Scottish poet Robert Burns said it best: "The best laid plans of mice and men often go awry." In the wealth management industry, the "awry" moment is an unexpected, six-figure medical expense that isn’t covered by Medicare, which may drain a client’s retirement nest egg.

The solution? Resilient planning that holistically integrates long-term care into a strategic plan.

Three uncomfortable truths

The need for long-term care isn't a possibility – it's a statistical near-certainty for both aging and younger clients that will live longer. This exposure is defined by three critical facts that advisors must address head-on.

Probability is catastrophic

It’s not a matter of if, but when. Data shows nearly 70% of people turning 65 today will require some form of long-term care services or support before they die. For a married couple, the probability that at least one spouse will need care is even higher, virtually guaranteeing a sustained draw on capital.

Duration is longer than you’d expect

These medical needs are rarely short-lived. While the average duration of required care is approximately three years, a full 20% of today's 65-year-olds will need care for longer than five years. This isn't a brief illness; it's a multi-year, chronic drain on assets that can force the liquidation of investment portfolios at inopportune times.

The impact may be unplanned catastrophe

The confusion surrounding Medicare's limited role leaves the financial burden almost entirely on the individual. The median cost of a private nursing home room averages over $125,000 per year. If a client requires care for the average three years, the total unplanned expense can exceed $375,000, easily dissolving years of careful saving. This gap represents a looming financial crisis that could put the entire family’s wealth at risk.

The unspoken multiplier

The likelihood and duration of needing care are further amplified by a critical demographic trend: people are living longer, but not necessarily healthier, for a longer period of time. The increasing prevalence of dementia and Alzheimer's disease presents a unique exponential risk.

Individuals with cognitive impairment often require the highest levels of supervision and care, frequently extending far beyond the three-year average duration. A diagnosis of dementia increases the complexity of care, and critically, the annual cost. With a new case of dementia arising globally every three seconds, and cases projected to nearly triple by 2050, planning for this specific, high-cost, long-duration risk factor is a critical component in a comprehensive strategy.

Five ways to transform long-term care planning

Neglecting to address long-term care is a failure of planning, not saving. A comprehensive financial strategy must focus on resilience. The goal is to shift the conversation from an uncomfortable morbidity discussion, to a powerful strategy for financial independence.

Uncorrelated asset

Advise clients to view long-term care insurance as a completely uncorrelated asset designed to protect their core portfolio. Modern hybrid life insurance solutions are superior to the old "use it or lose it" policies. They allow clients to reposition a portion of their wealth to create a larger, leveraged pool of money that pays out tax-free income for care, independent of market performance. If the asset isn't used, it can be returned to the estate as a death benefit.

Lead the conversation

The true value of the expert is in leading the difficult discussion. It is important to shift the conversation.

Here’s a good conversation starter: “We’ve planned for what happens when you die. Now let’s plan for what happens if you live and need care. What would you want that to look like?”

This honors their wishes and preserves their independence.

Align stakeholders

A care crisis often causes a family breakdown. Proactively involve all family members to document honoring wishes – including where and by whom the client wants to be cared for – to prevent bickering when the crisis hits.

Protect the portfolio

By mitigating the long-term care risk, you can help to prevent the forced liquidation of equities at a loss, and the potential financial drain that unplanned care imposes on an investment portfolio. This can help to safeguard the family’s wealth.

Secure next-gen loyalty

Advisors who help the family navigate and financially mitigate the long-term care crisis can establish deep trust, leading to working with the client’s heirs. By safeguarding the estate, you can cement a family relationship for generations ahead.

Advisors who incorporate long-term care into every plan are not simply mitigating risk – they’re ensuring that their clients’ wealth serves its ultimate purpose: sustaining independence, dignity and legacy. The best-laid plans must account for the full arc of life, and the potential unexpected ahead. In the end, the measure of a financial plan is not how it performs in a bull market, but how well it endures life’s inevitable disruptions.

Peter Kaplan is an executive vice president and head of financial planning at Integrated Partners, where he focuses on developing resilient, holistic wealth strategies. Kim (Natovitz) Cutler is a leading long-term care specialist and strategic partner to financial advisors, helping them navigate the complex landscape of health and longevity risk.