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

Tyler Gardner (0:00)

So 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. After 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. One, 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 left something out. 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. Pre-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, and 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, you'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 break-even math, the health care gap between 62 and 65, and the six questions that can actually help you drive your decision. And 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. A 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 health care 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. That'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 Industries Research Organization, only about 7% of Americans over 50 have a stand-alone 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. Some 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 light-hearted 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. Let'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 ratchets 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. And 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 a hundred 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. And 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. Median 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. And 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 one in nine people over 65, and roughly one in three over 85, the average duration of care from diagnosis to death is four to eight 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 to 2045 prices, we're talking about a number with a lot of zeros in it. We'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. 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