Few financial threats are more destructive to a retirement plan than a prolonged long-term care event. Medicare covers custodial care for only a short time, leaving families to face difficult choices: spend down assets to qualify for Medicaid, or pay out of pocket — bills that can easily climb into the hundreds of thousands of dollars. One often-overlooked solution is establishing a reverse mortgage Home Equity Conversion Mortgage (HECM) Line of Credit early in retirement, creating a growing financial reserve that exists outside of traditional savings.
Even when long-term care insurance is in place, gaps remain. According to the American Academy of Long-Term Care Insurance (AALTCI), only about half of policyholders ever file a claim. And for those who do, coverage doesn’t begin immediately — most policies include an elimination period, typically 90 days, during which the policyholder pays out of pocket before benefits kick in. Factor in that some people recover or pass away during that waiting period, and the likelihood of actually using the policy drops to around 35%. Beyond the elimination period, daily benefit amounts often fall short of actual care costs, leaving families to cover the difference.
Consider Sharon and Bob, a Massachusetts couple who found themselves in exactly this situation. When Bob needed care, they discovered their policy’s 90-day elimination period would cost roughly $30,000 — far more than they had anticipated when they purchased coverage years earlier. On top of that, the policy’s daily benefit wouldn’t fully cover Bob’s actual care costs, creating an ongoing shortfall Sharon wasn’t sure how to manage. With just $500,000 in savings and Social Security income, she was understandably reluctant to drain their nest egg.
Their solution was a HECM Line of Credit on their home. An initial draw of $50,000 covered the elimination period and helped pay down some existing debt, such as Sharon’s car. The remaining $350,000 credit line now bridges the gap between what Bob’s care costs and what the insurance pays each day. Because no monthly payments are required on the borrowed funds, their cash flow remains stable — and their retirement savings stay invested, continuing to grow for the future.