Long-Term Care Costs Drain the Middle Class

Grabbed one section out of a longer piece by the Roosevelt Institute on Long Term Care. I am betting many Baby Boomers lack such. I also suspect they have no other resource either. Not a difficult read.

III. Long-Term Care Depletes Assets for Middle-Class Americans and Contributes to Widening Wealth Inequality, Roosevelt Institute

For millions of older Americans, the path from aging to needing long-term care is also a path toward financial depletion. Even families who may start retirement comfortably above Medicaid eligibility often end up spending down their assets until they qualify. More than four out of five middle-class adults over 65 who need long-term care for five years or more will eventually enroll in Medicaid, as will nearly half of upper-middle-class couples with lifetime earnings over $4.75 million. Specifically, 95 percent of this group of adults in the bottom quintile of lifetime earnings, 91 percent in the second quintile, 87 percent in the third quintile, 75 percent in the fourth quintile, and 53 percent in the top quintile will eventually enroll in Medicaid after age 65 (Johnson et al. 2021). Long-term care is often too expensive, and unpaid family caregiving alone is not a solution to meeting growing needs.

Using 1992–2022 data from the University of Michigan’s Health and Retirement Study (HRS), this analysis shows how quickly long-term care needs decrease net wealth for older adults, especially those in the middle class. Figure 1 shows the trajectory of net wealth for low-income and middle-class individuals in the years before and after individuals report difficulty with two or more activities of daily living (ADLs), a common threshold for assessing institutional long-term care need.

“Low-income” includes individuals in the bottom quarter of the income distribution based on their pre-retirement household income. The “middle class,” while notoriously difficult to define, includes individuals whose pre-retirement household incomes fall in the middle of the distribution (the 26th and 75th percentiles) of household income. I use this definition in order to capture families who have some opportunity to accumulate assets through work and saving, but whose economic security might still be substantially undermined by the onset of long-term care needs. The middle class, in particular, is most exposed in the current long-term care system. Lower-income adults are more likely to already qualify as is for Medicaid long-term care, while high-wealth households are better able to absorb rising out-of-pocket costs without exhausting their assets.

Figure 1

Across both low-income and middle-class older adults, net wealth declines gradually over time, but begins falling more sharply two to four years before care needs arise and continues to fall at the accelerated pace for a few years after. For lower-income adults, the accelerated pace of wealth decline slows down about two years after meeting the formal definition of institutional care need. For middle-class Americans, the rate of decline continues for much longer, eventually tapering off at around the eight year mark. The leveling off among low-income adults likely reflects the point at which assets fall low enough to qualify for Medicaid coverage. Middle-class Americans, however, must continue drawing down savings for much longer before reaching any comparable floor.

That wealth declines precede year zero suggests that financial strain begins before formal disability as health issues intensify and caregiving needs build. This pattern matches previous research showing that costs linked to disability often occur before the formal onset of care need (De Nardi et al. 2016; Coe and Lindeboom 2008; Baker et al. 2006). Care needs develop gradually rather than popping up over night, and care-related spending likely starts increasing during this earlier ramp-up period. In the interim, families likely fill the gap through unpaid or privately financed support.

Figure 2

Not all families are similarly affected by long-term care costs though (see Figure 2). For the highest-income Americans (the top 25 percent), the decline in median wealth near care onset is a smaller percentage decline compared to their lower-income peers. More importantly, the decline is not permanent. Those in the top 25 percent eventually regain enough wealth at the median to make up about 94 percent of their starting assets, while lower-income and middle-class individuals face permanent reductions to just 11 percent and 42 percent of their original, and much lower, wealth levels.

High-income households, in other words, can absorb out-of-pocket care costs without fundamentally altering their long-run financial position. Low-income and middle-class families cannot. Instead, long-term care permanently drains assets from the middle class and lower-income families that might otherwise support retirement security or be passed on to the next generation.

Figure 3

When we focus on the middle class, we can also examine what would have happened to their wealth trajectories if they had not developed long-term care needs (see Figure 3). By comparing middle-class older adults who eventually develop long-term care needs to similar adults who do not or have not yet, the divergence in wealth is clearer.

At the start, all groups begin with comparable median wealth, around $150,000 per capita. Among those who eventually need care, median wealth declines in the decade leading up to care need onset, falling by roughly 40 percent or just over $61,000. Most of this decline happens in the four years immediately preceding the onset of care need, showing an acceleration of asset drawdown before year zero. After care need onset, wealth depletion continues, with median assets for this group falling for several years and reaching a low of $65,000 by about eight years after onset.

In contrast, adults who never develop care needs in the survey, follow a different path. Assets rise modestly over the full 20-year period by around $24,000. This group is likely younger, wealthier, and healthier compared to individuals who eventually have care needs, and so are continuing to accumulate wealth as would be expected. By 10 years after the reference point (year zero), those never needing care have about $100,000 more in median assets than individuals who experienced care needs.

Adults who have not yet developed care needs in a given survey wave, but might report care needs at a later survey wave, sit in the middle. Their median wealth declines over a 10-year period, but less sharply than those who need care. At year zero, this group has over $11,000 more in median wealth than those who need care. By 10 years after the reference year, individuals who have not developed care needs yet have nearly $34,000 more in median wealth than those who did. These diverging trajectories between groups highlights how long-term care accelerates asset depletion among the middle class beyond normal retirement draw downs.

Together, Figures 1, 2, and 3 show that long-term care drains wealth for the American middle class. It accelerates the draw down of assets, eroding the potential for modest bequests to children. Since Medicaid coverage only kicks in after assets are nearly gone (in most cases), the US long-term care system essentially requires middle class families to spend down before accessing public support. In doing so, it turns long-term care from a personal health challenge into a structural component of downward mobility and intergenerational wealth inequality.

Figure 4.

In fact, Americans who need long-term care expect to leave their kids less money (Chen, Munnell, and Wettstein 2025). When comparing expected bequest amounts of middle-class Americans before and after a severe level of care need, there is a similar pattern to that of the net wealth figures, where expected amounts drop significantly over the two years before and after onset (see Figure 3). For low-income older adults, bequest amounts are practically zero across the board.

The decline in expected bequest amounts for middle class Americans around long-term care needs suggests that families are forced to sacrifice their capacity to pass on wealth to the next generation in order to pay for present long-term care costs. For middle-class Americans, this spend-down dynamic represents an underappreciated mechanism of intergenerational wealth extraction. While households at the top end of the wealth distribution can absorb long-term care expenses, the majority of American families cannot. For middle-class families, long-term care costs are more likely to eliminate not only the assets of the older generation, but also to impact the capacity of the next generation to build wealth. A long-term care system structured around private payment till asset depletion perpetuates wealth inequality across generations.

How Long-Term Care Costs Drain the Middle Class and Deepen Intergenerational Wealth Inequality – Roosevelt Institute