The $172,000 Retirement Surprise (And Exactly How to Avoid It)

0:00So when you say, my kids will take care of me, what you may actually be saying is my kids will absorb a significant financial and personal cost so that I don't have to plan for it. that's worth sitting with. Hello, friends. This is Tyler Gardner welcoming you to another episode of Your Money Guide on the Side, where it is my job to simplify what seems complex, add nuance to what seems simple, and learn from and alongside some of the brightest minds in money, finance, and investing. So let's get started and get you one step closer to where you need to be. Before we get into today's episode, I am genuinely thrilled to share this with you.

0:42After three years of listening to your questions and locking myself in a room to answer as many of them as I can, I decided it would be slightly more efficient to write a book. So I did. It's called Real Wealth, published by Norton out December 6th of this year. Yeah, the kid whose parents thought he might be illiterate until he was 21 and whose high school English teachers passed him on the condition he never took another English class, and I'm dang proud of how it turned out and what I believe it can and will do for all of you. Here are three quick reasons to pre-order right now, and I'll tell you exactly how at the end.

1:21One, you'll actually finish this book. I know, low bar, except it really isn't. I've spent two decades watching people's eyes go blank the moment I said asset allocation. I took that personally. This is my response. You know the look, and I refuse to be the cause of it. Number two, the number one comment I get thousands of times is, You're right. I'm making 60-second videos about topics that deserve 60 minutes. This is my answer, everything in one place. No countdown clock, no algorithm cutting me off. And number three, what I'm most excited about, every month through December, I'll be releasing an exclusive pre-order incentive, and April's might already be my favorite.

2:10Pre-order this month and you're automatically in for a free two-hour live event on Wednesday, May 6th, where I'll be expanding on some of the ideas present in the book and answering some of your most commonly asked practical and theoretical investing questions. This will be exclusively for people who pre-order. Here's all you need to do. Go to tylergardner.com, pre-order the book, then click the button on the page that says you've pre-ordered. Two minutes, you're in, and I genuinely cannot wait to do this with all of you. Real Wealth, December 6th. Your future self will appreciate having it all in one place.

2:48And now, on with the show. All right, welcome back to your Money Guide on the Side. I'm Tyler Gardner, and today we're going to talk about something that approximately nobody wants to talk about. And you know what? Truth be told, I almost didn't make this episode because genuinely, I know how few people want to talk about this, listen to others talk about it, or even think about it. Well, maybe especially think about it. But I did make the episode because approximately everyone needs to be thinking about the following right now. Long-term care. I know. I can feel the collective enthusiasm through the microphone.

3:31You're on your morning walk or your commute, or if you're particularly committed on your Peloton, and you thought you were going to get another fun episode about index funds and market history and the occasional dry joke about behavioral economics. And instead, I've opened with the phrase long-term care, and you now are wondering if you should send this to your great-grandparents. I apologize, sort of. Here's my defense. Last episode, we talked about social security, specifically the decision of when to take it, the breakeven math, the healthcare gap between 62 and 65, and the six questions that can actually help you drive your decision.

4:13And if you haven't listened to that one, I would go back and do that first because today's episode is in a way a direct sequel. We are in a sense picking up where that one left off. Because here's the thread that runs through both. The uncertainty of our own longevity. The central variable in the social security decision is how long you live. The central variable in the long-term care conversation is also how long you live. And the uncomfortable truth that connects them is this. Living a long time is wonderful, and living a long time is expensive, and the two facts are in constant creative tension with every financial plan ever made.

5:01A few episodes back, I introduced you to the importance of thinking about retirement before you retire. I know, novel concept. Well, now I want you to think of long-term care as the other red zone, the one that doesn't depend on markets at all, the one that can be triggered by a stroke at 71 or a fall at 78 or a dementia diagnosis at 82. And that can take a retirement plan that was working perfectly and convert it with startling speed into something that is no longer working at all. Here's the number I want you to carry through this entire episode. According to Fidelity's 2025 retiree healthcare cost estimate, a single person retiring at 65 may need approximately$172 ,500 saved after taxes just to cover basic health care expenses in retirement.

6:05That's not groceries. That's not travel. That is specifically medical costs, and that number does not include long-term care, which the same estimate treats as a separate category because the costs are so variable and so potentially enormous that folding them in would make the number too frightening to put in a fidelity report. Someone turning 65 today has nearly a 70 % chance of needing some type of long-term care before they die. 70 %! That's not a tail risk. That's not the thing that happens to other people. That's the base case. And yet, according to LIMRA, that's the insurance industry's research organization, only about 7 % of Americans over 50 have a standalone long-term care insurance policy, which means 93 % of people in the demographic most likely to need this coverage have made, either consciously or by default, a decision to self-insure.

7:14Some of them made that decision intentionally with full information as part of a thoughtful financial plan. Most of them made it the way I make decisions about my car's maintenance, by not thinking about it and hoping for the best. Today, we're going to fix that. Five clear points, real numbers, real options, and at least a few lighthearted digressions, because the only way to get through a topic this important, and potentially this dry, is to make it slightly less awful to sit with. And, as always, familiar ask, if you're finding this show useful in any way, please consider leaving a review on either Apple or Spotify or wherever you listen, as it helps others find the show and it helps me appreciate that I'm not just talking into the endless void of endless personal finance podcasts.

8:06Let's go. Now, blame the former English teacher in me, but before we get into the five points, I want to spend a few minutes on definitions because I find that people often have the wrong picture in their heads and that affects every decision downstream. When most people hear long-term care, they imagine a nursing home. Specifically, they might imagine the nursing home from the movie they saw once. Fluorescent lights, sad music, institutional food, maybe the occasional glimpse of Nurse Ratched strolling by every now and again to make sure all is well and orderly in her place. You know, the general ambience of a place where hope goes to retire before you do.

8:50And then they think, I'll never end up there. I'm different. I'm active. I eat well. I have a Peloton and spend Sundays with Allie Love, and I am going to live to be 100 and then die instantaneously. The Peloton will not save you. Here's the more accurate picture of long-term care. Long-term care is any ongoing assistance you need with what the industry calls activities of daily living, or ADLs. That's bathing, dressing, eating, transferring, meaning getting in and out of bed or a chair, using the bathroom, and maintaining continence. When you need help with two or more of these things, you typically qualify for long-term care benefits under most policies.

9:42And here's what most people don't understand. The majority of long-term care doesn't happen in a nursing home. According to the 2024 Genworth Cost of Care Survey, which is the industry's annual bible on this stuff, the most common forms of care are home health aid care, where a paid professional comes to your home to help you. Median cost in 2024 was about 30 bucks an hour, or roughly$62 ,000 a year for a 40-hour week. Adult day services. You go to a community center during the day for supervision and care. Median cost, 2024, about$20 ,000 a year. Assisted living. You live in a community with support staff, your own apartment, and shared amenities.

10:27Median cost, about$64 ,000 a year. Memory care. Specialized assisted living for dementia. Median cost, about$72 ,000 a year. and nursing home care, full-time skilled nursing in a facility, median cost about$104 ,000 a year for a semi-private room, and for a private room, north of$116 ,000, obviously depending on where you live and what kind of care you're looking for. Keep in mind, those are medians, which means half the country costs more than that, and those costs have been rising at between 3 % and 5 % annually, Which means if you're 50 today, and I know a lot of you are, and you need care at 80, you should roughly double every number I just gave you.

11:17And the average length of a long-term care need is two and a half years. But averages, as we've established on this show over and again, are deeply unreliable guides to individual experience. About 20 % of people who need long-term care need it for five years or more. And for dementia specifically, which affects roughly 1 in 9 people over 65 and roughly 1 in 3 over 85, the average duration of care from diagnosis to death is 4 to 8 years, with costs that start high and climb as the condition progresses. Do the math. Five years of memory care at today's costs, inflated 2045 prices, we're talking about a number with a lot of zeros in it.

12:03We're talking about the kind of number that converts comfortable retirement into my kids are arguing about selling the house, which brings us to the five points you need to know. This week's episode is brought to you by Thrive Market, and I'm going to tell you exactly why this one resonated with me so personally. For those of you who know me, I am a raging introvert. I spend most of my day walking through the woods in Vermont with my dogs or making content for you. I do not find the grocery store to be a recreational activity. I find it to be a mild form of punishment involving fluorescent lighting and too many decisions about things I don't understand.

12:43So when someone told me I could have access to high quality, pre-vetted, healthy ingredients delivered to my door, click of a button, no store, no label reading, no Googling whether some 14-syllable ingredient is slowly dissolving my liver, I was in. That was the whole pitch. I didn't need anything else. Here's what actually makes it work though. Thrive Market has already restricted over a thousand ingredients, meaning every product on the site has been vetted before it ever gets to you. No stressing over labels, no ingredient rabbit holes at 10 p.m. The work is done. They also have over 90 dietary filters, so you're only ever looking at products that actually fit how you eat, whether that's high protein, low sugar, gluten-free, keto, whatever your household needs.

13:31And the math is genuinely embarrassing in the best way. $5 a month. That's the membership. Most members make it back in their first two orders through member pricing alone, up to 30 % off, free delivery on qualifying orders, no per-order fees, no tip math, just one flat cost and a cleaner pantry. Also worth knowing, and I absolutely love this part, Every paid membership sponsors an additional membership for a family in need, a teacher, a first responder, or a veteran through their Thrive Gives program. Which means the$5 is doing more than one thing. This is exactly my kind of company. Join Thrive Market today by visiting thrivemarket.com slash Tyler and get$20 off your first three orders plus a free$60 gift.

14:22With a 30-day risk-free guarantee on the annual membership, this is a no-brainer and there's no reason not to try it. That's thrivemarket.com slash Tyler. Number one, the link to the Social Security episode or longevity as a blessing with a real financial consequence clause. Let me bring this back to the social security conversation that we had last week, because the connection is important and I do not want it to get lost. In that episode, we talked about break-even math. If you take social security at 62, you break even against waiting until 70 at around 80 to 81. After that break-even point, the person who waited wins, and they win by an increasing margin for every year they keep living.

15:16Here's the other side of that same coin. Every year of life past that breakeven point is also a year of potential additional long-term care need. Every year of the longer retirement that makes the delayed social security strategy mathematically superior is also a year during which the probability of needing care increases. This is not an argument against living long. I want to be very clear about that. This is an argument for understanding that longevity has financial consequences that most retirement plans don't price in correctly. Think about it this way. A retirement plan that's built on the 4 % rule out of a$1.5 million portfolio, Social Security starting at 67, and about a 90 ,000 annual spending budget is a perfectly respectable retirement plan.

16:11Run it through a Monte Carlo simulation, it will look solid, and it has about an 85 % probability of success over 30 years. What that simulation almost certainly does not include is a three-year assisted living stay at$75 ,000 per year. In today's dollars, starting at age 82. Because that's not a market event. That's not sequence of returns risk. That's a healthcare event. and it's priced differently and planned for differently and almost universally planned for inadequately. Three years of assisted living at today's median cost is$192 ,000. At 2045 cost assumptions, it's closer to$350 ,000. And that's not an outlier scenario.

17:00That's a coin flip. Now, compound this with the Social Security timing decision. If you took Social Security at 62 and your monthly benefit is around$1 ,400 a month and your care costs$75 ,000 a year, Social Security is covering$16 ,800 of a$75 ,000 bill. It's not nothing, but it is not going to solve the problem. If you took it at 67 and you're getting$2 ,000 a month, you're covering$24 ,000 of a$75 ,000 bill. Better still not solving the problem. The math is the math. Long-term care is a risk that sits orthogonally to your investment portfolio and your social security strategy. It doesn't care what your allocation is.

17:45It doesn't care what your withdrawal rate is. It arrives if it arrives, and it presents a bill, and your plan either has a way to pay that bill or it doesn't. Here's the thing I want you to take from point one stated plainly. Your retirement plan is not complete until it has an explicit answer to the question, what happens if one or both of us needs long-term care? Not a vague gesture toward, we'll figure it out, an actual answer with numbers attached to it. We're going to help you build that answer over the next four points. Number two, the four options to pay for long-term care explained as honestly as I can present it.

18:27There are exactly four ways to pay for long-term care, no more, no less. I want to walk through all of them, including the ones that sound better than they are, because the honest version of this conversation is going to be way more useful for you than the comfortable one. Option one, you can self-insure. This just means you pay out of pocket, your savings, your investments, your assets. You're the insurance company, except you'll most likely be more willing to take your own claims seriously. This is actually a completely legitimate strategy for people who have enough assets to absorb the hit without depleting what they need to live on.

19:04General rule of thumb from financial planners who specialize in this area is if you have about$2.5 million or more in liquid investable assets, self-insuring is a reasonable choice. The cost of a long-term care event, even a significant one, is unlikely to fundamentally threaten your financial picture. Below$2.5 million, and particularly below$1 million, self-insuring is less a strategy and more hope dressed in khakis from an era where people still wore khakis. The risk with self-insuring at any asset level is what planners call the catastrophic scenario. Not the average two and a half year care need, but the eight year dementia progression.

19:51Or the couple where both partners need care simultaneously. Or the situation where care costs in a high cost metropolitan area are running$180 ,000 a year and climbing. At that point, even a substantial portfolio starts to look different. Not ruined, perhaps, but changed. Your children's inheritance, your charitable intentions, your spouse's financial security, all of it starts to compress. So self-insuring is a choice, and it should be a conscious one, not a default. Option two, Medicaid. Medicaid is a federal state program that covers long-term care for people who have exhausted their own assets.

20:34If you spend down to roughly 2 ,000 accountable assets, the exact threshold varies by state, Medicaid will cover your nursing home costs. I want to say this clearly and without judgment. Medicaid is a legitimate safety net that millions of Americans rely on, and it does what it's designed to do. I'm not going to suggest there's anything shameful or wrong about it. What I am going to tell you is that Medicaid is not a long-term care strategy. It's what happens when your long-term care strategy has failed or never existed in the first place. Because getting to Medicaid eligibility means you have spent down virtually everything you accumulated over a lifetime of working and saving.

21:19Your home in many states is subject to Medicaid estate recovery after you die, meaning the state can come after it to recoup what it paid for your care. And Medicaid doesn't pay for the care you might want. It pays for the care that's available within its reimbursement rates, which in most states means a semi-private nursing homeroom, not an assisted living facility, not home care at the level you might prefer, not memory care in the facility you might prefer. Medicaid as a safety net, yes. Medicaid as a plan, no. Option three, traditional long-term care insurance. This is the product that's been around since the 70s, and it has had, to put it as diplomatically as I can, a very complex history.

22:08The insurance industry badly mispriced these policies in the early years, dramatically underestimating how long people would live and how much care they'd need. The result was a wave of massive premium increases, sometimes 50, 80, even 100 % that hit existing policyholders who were already paying and couldn't easily switch. Several large carriers exited the market entirely. My guess is most of you know what I'm talking about. The market has stabilized significantly since then. The carriers still in this space have much better actuarial models, but premiums are higher. underwriting is stricter, and the product has a reputation hangover that's made people slightly gun-shy.

22:52Here's what you need to know about traditional LTC insurance. If you're going to buy it, I cannot echo this one enough, the sweet spot is your mid to late 50s. The premiums are meaningfully lower than in your 60s, and you're likely still healthy enough to qualify. A 55-year-old couple can often get a solid policy for$2 ,500 to$4 ,000 per year combined. If you wait until 65, that same coverage can run$5 ,000 to$8 ,000 or more easily annually if you can still qualify at all. The standard policy features worth understanding are the benefit period, that's how long the policy pays, typically two to five years or lifetime, daily or monthly benefit amount, how much it pays per day or month, elimination period, that's the deductible equivalent, usually 90 days you pay yourself before benefits kick in, and inflation protection.

23:56This is critical. You want to look for 3 % compound inflation protection minimum because care costs tend to rise faster than general inflation. Option 4, hybrid policies. This is the fastest growing segment of the long-term care market, and for good reason. A hybrid policy combines either life insurance or an annuity with a long-term care benefit. Here's the basic structure. You put in a lump sum or pay premiums over time. If you need long-term care, the policy can pay those benefits. If you die without ever needing care, the scenario everyone secretly hopes for, the policy pays a death benefit to your beneficiaries.

24:42You don't lose your premiums if you stay healthy. The pitch is you have to die or need care, so one way or another, this money does get used. The trade-off is that these products are far more complex, often require a much larger upfront investment, and the long-term care benefits are sometimes less robust than a standalone LTC policy for the same premium. But for people who balked at traditional LTC insurance because it felt like betting against their own health, the hybrid structure removes that psychological friction. Hybrids are absolutely worth exploring, particularly life insurance-linked hybrid policies, which have become significantly more competitive over the last five years.

25:29Now, a quick, honest summary of option four, there is no perfect product. Every option involves trade-offs between premium cost, coverage quality, flexibility, and the uncomfortable reality that you don't know whether you'll need this or how much. What I can tell you is that doing nothing, choosing to not choose. It's also a choice, and it's the least deliberate one available. Also, just for the record, no, I don't sell insurance and hybrid policies. This week's episode is brought to you by FACET. And before I read this one, I want to say something that I mean very genuinely. I use AI every single day.

26:11I'm on record about this. So what follows is not a Luddite manifesto. It's just three things I've noticed, and I talked about all three of these concerns in my AI podcast last week. First, when you ask AI to help plan your finances, you're feeding a learning model your proprietary data, salary, debt, retirement accounts, your entire financial biography. And somewhere in that terms of service document longer than your mortgage is language granting fairly broad rights to that conversation, worth knowing before you type. Second, AI hallucinates. That's the industry's delightful word for confidently presents invented information as established fact.

26:53As a test, I recently asked a popular AI tool for the 2026 SEP IRA contribution limit. Wrong. I pushed back. New number. Also wrong. Charming quirk in a poem. Meaningful liability in your tax plan. Third, garbage in, garbage out. AI is only as good as the questions you bring to it, and most of us don't yet know the right questions to ask about our own financial lives. So here's what I actually want for you. Use AI to get curious. Use it to learn the language. And then when you're making decisions that dictate the rest of your financial life, go talk to a human, specifically a CFP professional at Facet who combines real expertise with technology to build an actual plan around your actual life.

27:45One flat annual membership fee, no commissions. AI can give you a definition. FACET will help you live the life you worked so hard to build. Go to facet.com slash Tyler to get started. That's facet.com slash Tyler. FACET is an SEC registered investment advisor. This is not advice. all opinions are my own and not a guarantee of a similar outcome. I'm not a member of FACET. I have an incentive to endorse FACET as I have an ongoing fee-based contract for cash compensation, as well as a percentage of equity in FACET based on this endorsement.

28:23Number three, I want to give you a framework for thinking about your own number, not a generic number, yours. Step one, I want you to estimate your care cost exposure. You're going to go to Genworth's, that's G-E-N-W-O-R-T-H's cost of care calculator. It's free at genworth.com and look up the median costs in your area or where you expect to retire. Costs vary enormously by geography. The same assisted living facility that costs$45 ,000 a year in rural Iowa might cost$120 ,000 a year in San Francisco. Your number is the number for your actual location. Pick the care setting you'd realistically want, not the worst-case nursing home you'd accept, the setting that would actually match your quality of life expectations.

29:16Step two, I want you to estimate your coverage period. Now, the average, as we've gone over, is two and a half years. But here's where the social security conversation becomes directly relevant. If you come from a family of people who live into their late 80s and 90s, Your odds of the longer tail scenario are higher. Use five years as your planning horizon if you want to be super conservative. It's the coverage period most financial planners recommend as a baseline for exactly this reason. Step three, now I want you to calculate your exposure in today's dollars and then inflate it. Let's say assisted living in your area runs at$72 ,000 per year.

29:59Five-year exposure in today's dollars, about$360 ,000. Now, inflate to the year you might need it. If you're 50 now and might need care at 80, that's 30 years of healthcare inflation, which has historically run about 5 % annually. So at 5 % over 30 years time value of money, that$360 ,000 becomes approximately$1.55 million in nominal dollars. This is not a number I'm making up to scare you. That is a number I'm presenting because you should at least know it, and most people don't. Step four, I want you to figure out which bucket pays. How much of that can your portfolio absorb without fundamentally changing your plan?

30:48This is the question that tells you whether self-insuring is actually viable. If a one and a half million dollar care event, it's 40 % of your projected portfolio, and you have a spouse who still needs to live on the rest of it, that's a different conversation than if it's 15 % of a larger portfolio with plenty left over. Step five, assess your insurability window. I want you to go to the doctor, get a realistic health assessment, have the conversation you've been avoiding, because the harsh truth about long-term care insurance, both traditional and hybrid, is that you can only buy it when you're healthy enough to qualify.