The unrelenting surge in health care costs is making long-term care a critical piece of retirement planning, advisors say.

Medical care costs in August were up 4.2% on an annualized basis, according to the Labor Department’s Consumer Price Index (CPI), versus an overall inflation rate of 2.9%. The cost of a visit to the doctor jumped 3.5%, while hospital and outpatient services spiked 5.3%. Meanwhile, prescription drug prices rose a healthy 0.9% in August.

And the eye-popping increases are not expected to stop anytime soon. A number of surveys of large employers predict overall health coverage costs will rise an average of 9% in 2026, which would be the highest level of health-care inflation since 2010.

With health care costs so dramatically outpacing inflation, advisors are helping clients, and often clients’ parents, prepare for the financial and personal challenges of long-term care – even if it’s a topic most clients would rather not broach.

With costs rising faster than inflation, Tracy Byrnes, vice president of women & investing at Lebenthal Global Advisors, believes the question isn’t “if” your family should plan, but “how.”

“The average cost of a semi-private nursing home room now tops $100,000 a year – and in the tri-state area, it can be much higher. So it helps to start with some realistic assumptions: What would three to five years of care cost in today’s dollars? How might that grow at 3% to 5% each year? Then build those costs into your financial plan or family budget – just like healthcare, college, or even travel,” Byrnes said.

Elsewhere, Amy L. Jucoski, head of family office services & advisory at Callan Family Office, says part of planning is understanding and assessing costs and different risk factors. That means identifying key sources such as state & local Medicaid/long-term care (LTC) agencies for finding data on the average LTC expenses for in-home care, assisted living, nursing home care, and adult day care. There are also a number of websites that specialize in elder care and oftentimes will publish comparative cost data, by state, as regional costs can vary.

“Consider your preferences when budgeting such as your preferred lifestyle and whether you want to age at home, in assisted living, or in a nursing facility because these decisions will affect planning. Also knowing your family’s medical history can help you gauge your potential risk factors when contemplating future care needs,” Jucoski said.

Those clients that have savings income, investments, or other financial resources may be in a position to pay care costs for in-home care, assisted living, nursing home care, or adult day care directly. In such cases, Jucoski points out those monthly costs can be extremely high, between $4K and $8K per month depending on location.

“Some families create trusts or other financial structures in advance of the look-back period if they’re worried about depleting their assets too quickly. By transferring assets to an irrevocable trust, they are no longer countable assets for Medicaid purposes,” Jucoski said.

Mallon FitzPatrick, head of wealth planning at Robertson Stephens, recommends modeling different funding options — such as insurance, hybrid policies, or self-funding — and then analyzing how they influence overall retirement cash flow and estate plans.

“Explore the use of Health Savings Accounts (HSAs) for tax-advantaged savings and accessing home equity through reverse mortgages or sales as potential funding sources. Since care costs change over time, the long-term care plan should undergo reviews every few years, much like a financial check-up,” FitzPatrick said.

Making the best trade-offs

Once the ballpark cost has been determined, then the conversation turns to trade-offs.

Byrnes points out that traditional long-term care insurance provides dedicated coverage, but premiums can rise and if a client never uses it, the money is gone. In other words, use it or lose it.

On the other hand, hybrid life/LTC policies cost more upfront, but if long-term care isn’t needed, the value flows back to the clients’ heirs, which is more of a “use it or return it” approach, making the upfront costs more bearable. Wealthier households, meanwhile, may choose to self-fund, but that can chip away at assets meant for a spouse or the next generation.

“For many, the end result may be a mix of coverage from insurance or a hybrid policy, plus some self-funding,” Byrnes said.

When it comes to self-funding, Jucoski says it provides maximum flexibility because the client keeps control of the assets until care is needed, and there are no rules, restrictions, or premium costs. However, if they don’t properly budget for LTC costs, the impact could be significant – assets may be consumed, a surviving spouse is left without proper means for care, and/or families may be left managing complex finances under stress.

“The bottom line is your risk tolerance, liquidity needs, legacy goals, health, and insurability are all considerations when deciding which approach makes sense for you,” Jucoski said.

Reflecting family values

Callan’s Jucoski stresses to clients that LTC is not just about the money. It’s about dignity, family priorities, and family values. In her view, having a plan that prioritizes family care needs and includes strategies that align with family preferences is key to preserving family relationships, family communication, reducing burden on family caregivers, balancing independence and safety, protecting assets, and respecting any cultural or religious values.

“You oftentimes hear parents say, ‘I don’t want to be a burden on my children.’ Proper planning for LTC can help provide for caregiving so family members can be loving supporters, not full-time nurses. Having care coordinators to help manage decisions regarding who will provide the care, where, and how can be extremely helpful during emotional times,” Jucoski said, adding that family members usually don’t have the skills, knowledge, training, or physical strength to meet the demands of caring for their loved ones.

Yet while family members may not have all the skills to care for a loved one, they still need to act as a team.

FitzPatrick advises families to address their respective roles within the plan and budget for professional care to prevent burnout.

“Decide whether to pay the family, reimburse an adult child, or hire professionals to relieve family burden,” FitzPatrick said.

He also recommends ensuring legal documents are up to date and confirming the accuracy of durable powers of attorney and healthcare directives to ensure they accurately reflect the clients’ wishes for their appointed agent.

“And don’t forget to review every one to two years to keep clients in control, ensuring their values steer decisions even if they cannot communicate them,” FitzPatrick said.