A well-funded retirement portfolio, decades of maximum contributions, and a carefully timed Social Security claiming strategy can provide a strong financial foundation.
One expense, though, has the power to permanently drain a nest egg, and the vast majority of retirees never budget for it.
In a recent Schwab retirement planning article, one of the firm’s wealth advisors identified a single cost as a bigger threat to retirement security than market volatility, inflation, or rising tax bills.
The warning focused on an expense Medicare explicitly refuses to cover, one that can stretch across several years and compound with each passing month.
For Americans nearing retirement, Schwab’s data indicates the exposure is large enough to shape planning decisions.
Schwab identifies long-term care as retirement’s top financial threat
Kate Goesel, a senior manager for Schwab Wealth Advisory in Chicago, named extended custodial care as the answer.
Goesel told Schwab that prolonged help with basic daily tasks like bathing, dressing, and eating poses the greatest financial danger to retirees.
“The biggest derailer of retirement by far is long-term care,” Goesel said. “Even those with substantial retirement savings can be caught short by end-of-life expenses.”
Women require long-term care for an average of 3.6 years, while men typically need it for about 2.5 years, according to a 2022 research brief from the Department of Health and Human Services Office of the Assistant Secretary for Planning and Evaluation (ASPE).
The median annual cost of a private room in a skilled nursing facility reached $129,575 in 2025, the CareScout Cost of Care Survey confirmed.
Medicare, which most retirees treat as their primary health coverage, does not pay for ongoing custodial care under any of its standard benefit programs, Medicare.gov reported.
Part A covers skilled nursing stays only after a qualifying three-day inpatient hospital admission, fully pays days 1–20, requires daily coinsurance for days 21–100, and pays nothing after day 100 in each benefit period.
What five years of nursing home care could cost retirees
About 70% of adults who reach age 65 will eventually need some form of long-term care assistance, the Department of Health and Human Services estimated.
About one in five 65-year-olds will need long-term services and support for more than five years, the HHS/ASPE research brief found.
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The projected 2026 median cost for a single private nursing home room runs approximately $11,122 per month, the CareScout 2026 projection showed.
A five-year stay at that rate would total roughly $667,000, a sum large enough to deplete the vast majority of retirement accounts entirely.
Even less intensive care options carry serious price tags that compound over a prolonged period into six-figure totals for most families.
A nonmedical home caregiver working 40 hours per week costs about $6,250 per month at 2026 median rates, Schwab’s report noted.
Three paths to funding long-term care in retirement
Financial planners point to three primary routes for covering potential long-term care expenses: traditional long-term care insurance, hybrid life insurance policies, and self-insuring, and each has distinct trade-offs for retirees and pre-retirees.
The first path is a stand-alone long-term care insurance policy. In 2025, the average annual premium for a $165,000-benefit policy without inflation protection was $950 for a 55-year-old single man and $1,500 for a 55-year-old single woman.
Policies with inflation protection cost two to four times as much, according to the American Association for Long-Term Care Insurance.
The second path is a hybrid life insurance policy that bundles a death benefit with long-term care coverage and, unlike stand-alone long-term care policies, typically carries premiums that do not rise once the policy is issued.
These products allow policyholders to redirect a lump sum into coverage that pays for care or delivers a death benefit if care is never needed.
The third path is self-insuring, where retirees set aside a dedicated portion of their portfolio specifically to cover potential extended care.
Health savings account balances can help cover long-term care costs tax-free
Joseph Reyes, a senior financial planner at Schwab, called health savings accounts a critical tool for covering retirement health care expenses.
Contributions to a health savings account can reduce taxable income by up to $4,400 for individual coverage and $8,750 for family coverage in the 2026 tax year, the IRS confirmed.
Those funds grow tax-free, and withdrawals used for qualified medical expenses, including Medicare Part B and Part D premiums, incur no federal tax.
HSA balances can also be used to pay long-term care insurance premiums, giving retirees a tax-advantaged vehicle to cover both current medical costs and future care expenses, Schwab noted.
Reyes said the tax treatment of HSAs makes them one of the most efficient vehicles retirees have for offsetting long-term care costs, with the added benefit of passing unused funds to heirs.
The math here is powerful. And any money left behind in your HSA can be handed down to your beneficiaries.
Unlike traditional retirement accounts, health savings accounts face no required minimum distributions, which allows the balance to grow untouched for decades if needed.
Earlier long-term care planning gives retirees lower premiums and more options.
Schwab’s planning guidance recommends that pre-retirees explore long-term care coverage several years before they might need it, ideally between ages 55 and 60, when applicants are more likely to qualify for the best rates, according to the firm’s retirement planning article.
Applicants who develop a chronic condition before purchasing coverage face sharply higher premiums or outright denial, the American Association for Long-Term Care Insurance confirmed.
Younger and healthier applicants tend to qualify for lower annual premiums, though carriers can still request rate increases on policies, with state approval, Schwab noted.
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