You may have spent a good part of your working years planning for a financially secure retirement. But many issues can arise during retirement that can impact your financial health as well as your quality of life. For instance, the cost of medical expenses due to a prolonged illness or injury can quickly deplete your retirement savings and affect your quality of life and your spouse's. As we get older, the prospect of long-term care becomes a real possibility. If you're retired, how will you pay for long-term care if faced with those expenses?

Retirement savings and income

An obvious source for paying long-term care expenses is current income you receive from a retirement pension or Social Security retirement income. However, using current income may prove insufficient, or impractical, given other household expenses.

You could use qualified retirement accounts such as a 401(k) or IRA, or investments you set aside as a retirement nest egg. But you may be spending savings otherwise needed for the current or future financial support of your spouse or other family members. And withdrawals from qualified retirement accounts are generally taxed as ordinary income, meaning the more you take out, the more you may have to pay in taxes.

If you have equity in your home, you may be able to tap into that to pay for long-term care. However, since your home is probably one of your most valuable assets, there are many issues to consider before using it to pay for long-term care. Should you sell your house or take out a home loan? If you decide to take out a loan, what type of loan will work best for you? Some loan options include a conventional home equity loan, a first mortgage, and a reverse mortgage.

Private insurance

Aside from paying for your long-term care out of your own pocket, you might share the cost through various insurance products. The most common of these is long-term care insurance, which typically pays for the cost of long-term care up to a specified dollar amount per day, such as $150, for a fixed period of time, such as three years. Most policies will pay for care provided in your home, in an assisted-living facility, and in a nursing home. But the premium for this type of insurance can be expensive and the policy usually doesn't cover the entire cost of care, meaning you'll probably still have to pay for a portion of your long-term care expenses out-of-pocket.

Other types of insurance may also be used to pay for long-term care. Cash value accumulations in life insurance or annuities can be accessed, either by cashing the policy in or by borrowing against the cash value. However, policy loans and cash value withdrawals may reduce the policy's death benefit or cause the policy to lapse. Also, some life insurance and annuities have built-in features or riders that allow access to amounts in excess of the cash accumulation value if it's used to pay for long-term care.

Medicaid and veterans benefits

According to the National Clearinghouse for Long-Term Care Information, Medicaid pays for about 49% of aggregate long-term care expenses. Medicaid is a federally funded program administered through the states that provides long-term care benefits for those who meet state-specific financial eligibility requirements, as well as certain health or functional criteria. However, retirees are often unable to qualify for Medicaid because their income or asset values exceed financial eligibility requirements. Aside from Medicaid, the Department of Veterans Affairs may provide long-term care for service-related disabilities for veterans who meet eligibility requirements.