A retirement expert highlights this major worry of U.S. retirees as a significant risk factor and provides advice on how to prepare for it.

No matter how you plan to retire, you're likely looking forward to something, whether it's more time to watch your grandkid's soccer games or enjoy dockside piña coladas.

But living in retirement comes with some concerns, too.

According to CNBC's August 2024 Your Money retirement survey conducted with SurveyMonkey, among current retirees, 31% say declining health or illness is their biggest worry, which is the most common response. The second-most prevalent concern was dealing with health-care costs at 16%, and another 14% said they fear running out of money.

A recent study by Morningstar predicts that 45% of American households will face financial shortages in retirement due to various factors such as spending, investing, and life expectancy.

Researchers claim that one factor consistently decreases the likelihood of fully funding retirement, despite behaviors such as long-term investing in workplace retirement accounts.

"According to Spencer Look, associate director of retirement studies at Morningstar Retirement, long-term services and supports can cause significant shortfalls if a person is in need of them for more than a couple of years. Even one year can be a significant burden for some people with less savings, making it difficult to handle."

According to Look, expenses typically decrease during retirement, except for those who require long-term care, which may include part-time aides, live-in nurses, assisted living facilities, or full-time nursing homes. People who need this type of care due to physical or cognitive decline may see their expenses increase, resulting in a pattern known as the retirement "smile."

It's important to consider how you will cover the costs of long-term care if you need it, says Christine Benz, director of financial planning and retirement at Morningstar and author of "How To Retire."

"Long-term care costs are not covered by Medicare and are considered a significant risk factor. People worry about the potential for catastrophic expenses later in life. Having a plan can help alleviate this anxiety."

3 paths to cover long-term care

The cost of long-term care will vary depending on location and care type, but it's likely to be expensive.

The median annual cost for an assisted living facility is $64,200, according to Genworth's 2023 Cost of Care Survey. A home health aide costs $75,504 annually, and a private room in a nursing home will set you back $116,800.

Benz advises determining which of three payment categories you belong to in order to plan for costs.

1. Family care or Medicaid

Long-term care expenses for the majority of Americans who require it are either paid for by family members or covered by Medicaid. In 2020, more than 30% of the nearly $600 billion in Medicaid spending went towards long-term care expenses, as per the Centers for Medicare and Medicaid Services.

According to the American Council on Aging, eligibility requirements for long-term care under Medicaid vary by state, and for 2024, these often include an income limit of $2,829 per month and an asset limit of $2,000, excluding your primary home.

For some Americans who may not initially qualify for care, managing assets can make them eligible. However, this is not an ideal situation, as it may limit their choices and potentially impoverish a well spouse to qualify the ailing spouse.

2. Paying with savings

Some wealthy retirees save money for long-term care.

"Benz suggests that people with larger portfolios should consider the average duration of long-term care and the average costs to build a long-term care fund."

According to the Administration for Community Living, the average duration of long-term care for men is 2.2 years, while for women it is 3.7 years.

Planning for a six-figure bill is likely necessary if you do the math based on the costs.

To account for unforeseen expenses, many financial planners include a substantial allowance in their models for clients' discretionary spending.

"Yusuf Abugideiri, a certified financial planner and chief investment officer at Yeske Buie in Vienna, Virginia, states that they do not construct a plan that solely relies on specific assumptions. Instead, they believe that clients' spending capabilities will be utilized."

3. Long-term care insurance

Buying insurance that covers long-term care is a middle path that can involve either long-term care insurance or whole life insurance with a long-term care rider. Whole life insurance with a long-term care rider has become increasingly popular among those who are hesitant to pay premiums for a form of insurance they hope they'll never need to use, according to Benz.

"The popularity of those products has increased because they provide a level of flexibility, allowing you to choose whether or not you need long-term care, while still having a life insurance benefit," she explains.

Long-term care insurance may be more accessible than traditional policies for those with pre-existing conditions.

It is generally more advantageous to purchase a policy in your 50s or earlier, as this can help lower premiums and reduce the likelihood of being disqualified due to a health issue.

The cost of long-term care coverage through age 85 for a couple, both age 55, with a total of $800,000 is likely to be around $5,000 a year in premiums, according to the American Association for Long-Term Care Insurance.

Discussing the cost of a policy with your loved ones is worth it, says Gerika Espinosa, a CFP with DMBA in Salt Lake City, Utah.

She advises clients to have a conversation with their spouse or children about their retirement needs and caregiving preferences.

It is wise to discuss your options with both your loved ones and a financial professional before choosing a strategy.

Earn more money at work by taking CNBC's new online course, "How to Negotiate a Higher Salary." Expert instructors will teach you the necessary skills to increase your paycheck, including preparation, confidence-building, effective communication, and counteroffer crafting. Pre-register now and use coupon code EARLYBIRD for a 50% introductory discount through Nov. 26, 2024.

Sign up for CNBC Make It's newsletter to receive expert advice on work, money, and life.