As retirees live longer, many worry about outliving their savings. However, many older Americans haven’t planned for a looming expense: the cost of long-term care.

The median cost of a private room in a nursing home was $105,850, and in-home care costs were $53,768 to $54,912 annually, according to Genworth’s 2020 Cost of Care Survey.

Of course, these costs vary by location. While private room nursing homes charged a median of $13,535 per month in Massachusetts, retirees shelled out $7,619 per month in Tennessee in 2020, Genworth reported.

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“Long-term care is a major challenge,” said certified financial planner Brett Koeppel, founder and president of Eudaimonia Wealth in Buffalo, New York.

Although it’s tough to predict a retiree’s needs, the odds of requiring some type of long-term care services are high — almost a 70% chance for the average 65-year-old, according to the U.S. Department of Health and Human Services. Men typically need 2.2 years of care, and women may require 3.7 years.

However, it can be tricky to prepare and pay for services, financial experts say.

Typically, advisors start by reviewing the cost of long-term care in a client’s area. While some retirees can pay out-of-pocket, others may prefer to share the risk by purchasing an insurance policy.

Long-term care insurance may cover all or a portion of services, and the premiums depend on someone’s age, gender, health, location and more. 

For example, the average premium for initial benefits worth $165,000 (growing 1% to 5% per year) for a healthy 55-year-old man may cost $1,375 to $3,685 per year, according to the American Association of Long-Term Care Insurance.

A healthy 55-year-old woman may spend $2,150 to $6,400 per year for the same coverage.  

However, there’s a 50% chance someone won’t ever need their policy, the American Association for Long-Term Care Insurance estimates, and premium hikes can be costly.

“Typically, premiums go up 5% and they impose increases every five years,” said Brian Schmehil, CFP and director of wealth management at The Mather Group in Chicago.

A hybrid long-term care policy is another option. These policies are part life insurance or an annuity and part long-term care coverage.

Retirees may purchase a policy with an upfront payment, eliminating the risk of future premium increases, and their heirs may receive a death benefit if they don’t need long-term care.

“I’ve heard people describe it as just another way of taking a sliver of what they saved and managing risks that way,” Koeppel said. “It does give people that peace of mind that they’re covered.”

It may be tougher to compare prices for a hybrid long-term policy than standalone long-term care coverage.

However, a retiree may save money by trading in an existing life insurance policy or annuity through a so-called 1035 exchange, allowing them to bypass taxes on the embedded gains in their old products.  

Retirees with a sizable health savings account may use their pre-tax funds to cover long-term care premiums or expenses.

Moreover, those who itemize deductions may write-off long-term care expenses above 7.5% of their adjusted gross income on their taxes.

Low-income retirees with assets below certain thresholds may be eligible for long-term care services through Medicaid. However, there is a five-year “look-back” for those attempting to gift or spend down assets to qualify.

President Joe Biden called for $400 billion in Medicaid funding for home and community-based care as part of the American Jobs Plan. The measure wasn’t part of the Senate’s $1 trillion bipartisan infrastructure package. However, it was added to the budget resolution framework. 

Separately, House and Senate Democrats in June introduced bills supporting Biden’s agenda.