The Inevitable – Long Term Care
Long-Term Care Facts (Source-Life Happens, Genworth):
70% of those over age 65 will need some type of long-term care
The average need for care is three years, and 20% will need care for more than five years
In 2018, the average national cost of a one-year nursing home stay was over $100,000
Long term care is not just for the elderly, 37% receiving care are under age 64 (caregiver.org)
A typical 65-year-old couple will need to save nearly $400K to pay for health care AND long term care in retirement
Medicare does not pay for long term care
It’s long term care awareness month and for some of us, the above picture will be the reality of where we may live at some point. As such, we firmly believe long term care should be a part of every person’s long-term planning conversation. The financial, physical, and emotional impact may be devastating to not only your lives but the lives of others around you including your spouse and children. The cost of care and the need for care has grown significantly over the years. Depending on who is providing the care, it can impact not only your retirement plan but the plan of other loved ones. The cost of care can quickly deplete assets that were meant to provide a retirement lifestyle desired for you or your spouse. The remaining person in a family may be left with less assets for retirement due to unanticipated long term care spending. If loved ones such as children are providing care, it may impact their ability to work and earn money to save for their own retirement. It may also be physically too much to ask for somebody else to provide care for somebody who needs assistance with everyday activities such as standing, walking, bathing, etc.
The charts below (Genworth) illustrate how the cost of care has risen since 2004. The cost for a private nursing home has risen 54% over the past 14 years or on average nearly 4% each year. Assisted living costs have risen 40% over the past 14 years or on average nearly 3% per year. These costs are rising at nearly double the costs of other everyday expenses in our lives. The national average for a private room in a nursing home in 2018 is $100K per year. You can see how this adds up for a 2-3 year stay and the impact it can have on your retirement assets.
We also projected what those costs may be in 30 years. These are national averages and will vary depending on what area you live in. In 30 years, assisted living facility costs would be $116K per year vs $48K per year today. The cost for a private room in a nursing home would be $243K per year vs $100K today.
Genworth Cost of Care Calculator
Unfortunately, Medicare which provides our health care in retirement does not pay for long term care. Medicare only pays for skilled care or rehabilitative care. It does not pay for non-skilled care which is what long term care falls under. Most associate long term care with old age and medical needs. In fact, most long-term care is not medical care, but rather assistance with the basic personal tasks of everyday life, sometimes called Activities of Daily Living (ADLs), such as: bathing, dressing, toileting, transfer, incontinence, and eating. Medicaid, part of our government health programs, pays for the largest share of long term care services. In order to qualify, your income and assets must be below a certain level and you must meet minimum state eligibility requirements. Medicaid usually pays for low-income patients, and in mandated nursing home facilities, while you lose the right to choose where and by whom you are cared for.
Due to medical advances we are not dying as suddenly as in the past, from heart attacks as example. We should be more concerned about diseases such as Alzheimer’s and strokes where we can’t independently perform daily living functions.
There are several options we have when it comes to choosing where to receive care. We can choose to receive care at assisted living facilities, nursing homes, and even choose to receive care at home. Again, these options vary in costs and make for a meaningful difference in retirement spending. For those with substantial assets, it may be possible to self fund the cost of care. Of course, there are many things to consider when using retirement assets such as liquidity, and the tax implications for selling assets. For others, retirement assets can quickly erode due to the cost of care. I suggest a doing a comprehensive retirement plan for those self-funding long-term care costs to project what makes the most sense financially. We can run multiple scenarios for you based on your preferences.
Another solution is to explore other options to help pay for care, including long term care insurance. Long term care insurance can help cover costs and provide coverage for in home care, nursing home care, home health care, adult day care for those with a chronic or disabling condition. When needed, the policy pays a tax free benefit that is used to pay for care. This can allow you to maintain more control of the type and place where you receive care. The long term care landscape has changed so much for those in need, insurance companies, and providers that the way we purchase insurance has evolved over the years. These policies have become much more flexible to those who purchase them. They now provide other benefits if you don’t use the policy for long term care. The assets used to purchase a policy can be passed on to loved ones and even taken back out should you no longer wish to continue the policy.
Most of us have experienced a loved one dealing with a need for long term care and some have been the caregiver for a loved one. It is not easy on any family or caregiver. I have seen those prepared and unprepared for untimely long-term care needs. I assure you planning for old age, and the health problems that come along with it, is best to do while you are healthy. It is vital that you prepare for the future, protect your retirement savings, and your independence. Planning ahead will reduce the possibility of your loved ones assuming the responsibilities of caregiver and paying for your care. No matter what that plan may be it is best to get your immediate family involved, documents in order, and seek assistance for planning.
Please share this information with other family members including parents and siblings.
Let us know how we can help address questions you have and plan for long term care needs.
Here are a few articles and a calculator to estimate costs in your area.