By Sandra D. Adams
One of the primary concerns clients often have is making sure that their money will last as long as they do. Longevity concerns and the desire to be certain that their hard-earned money lasts a lifetime weighs heavy on the minds of those planning for retirement. Embedded in longevity concerns are fears that there may be some major medical or long-term care event that will eat up a large portion of retirement savings, making it harder to stretch retirement income and assets over a lifetime.
What the Statistics Tell Us
Despite the fact that so many Americans seem to be concerned about long-term care costs and their impact on future retirement success, a relatively small percentage of individuals actually purchase insurance specifically to cover this potential risk.
While the numbers have been increasing, even as of 2016 research from the Urban Institute showed that only about 10% of Americans over the age of 65 had long-term care insurance coverage. According to 2017 studies conducted by the Administration for Community Living (ACL), those turning 65 could have as much as a 70% chance of needing some type of long-term care during their lifetime; the average length of need averages 2.5 to 3 years.
Consider the median yearly costs for different types of care below (from the Genworth Cost of Care Survey 2019):
- In-home care, home health aide services: $52,620
- Assisted living facility: $48,612
- Nursing home, semi-private room: $90,156
- Nursing home, private room: $102,204
Note: Costs could be higher or lower depending on where you live.
For those without long-term care insurance coverage, unpaid family members and friends provide 83% of all long-term care in America, and two-thirds of older adults rely exclusively on free care according to the ACL.
The estimated economic value of this unpaid care is over $470 billion per year. The largest percentage of unpaid long-term caregivers are female (65%), and the largest percent are in the so-called sandwich generation, meaning they are caring for their elderly parents while also caring for their adult children and maybe even grandchildren. Another 34% are over age 65 themselves.
This tells us that some of those providing care with no compensation are potentially putting their own retirement savings at risk. They are likely cutting back on work, taking family leave time, etc., which prevents them from saving for their own retirement. This may impact their Social Security earnings, future pensions, and general financial stability.
Perception versus Reality
Interestingly enough, it seems that an overwhelming majority of Americans believe that "most people" should plan for long-term care. The results from the VerstaResearch study below are a classic case of "long-term care is something that is likely to happen to someone else, but not to me."
The study asked respondents about needing care for:
Think They Will Need Care
Think They Won't Need Care
In addition, while 97% of respondents agree "most people" should plan for long-term care needs, only 10% have actually purchased insurance to cover this risk. What might be the reasons for this?
Denial: These folks may say, "I am not part of the 70% that might be at risk for needing long-term care during my lifetime. I have always been healthy. I am part of the 30% that won't need long-term care."
Self-Insurers: Many people are in the group that have chosen to self-insure the long-term care risk. This means they have determined that they have enough income, savings, and investment assets to absorb any potential long-term care event that may occur, or, they are on the opposite end and have saved so little that it does not make sense to spend the money on long-term care insurance. Instead they plan to simply spend down assets and qualify for Medicaid should long-term care need arise.
Procrastinators: They know they're at risk and need to plan for the risk, but either they don't want to address the issue because it makes them uncomfortable or they simply don't make it a priority. The risk here is that if these folks wait too long, a medical condition may develop that causes them to be uninsurable for long-term care insurance.
About Long-Term Care Planning
When most people hear the term long-term care, the first thing they think about is insurance. Certainly, insurance can be a key component to a long-term care plan. It is one of the primary ways to help pay for needed high-cost services if a long-term care event occurs, but it is not all that goes into a long-term care plan. From a holistic standpoint, long-term care planning is a method of managing your finances so that you and your loved ones can achieve your long-term goals while at the same time negotiating the challenges and barriers that come with advanced aging.
- Who will take care of you?
- What if they can't?
- Where will care take place? This could be at home, in assisted living, adult foster care, a nursing home and other options. The type of care will also need to be considered: minimal, moderate, full time or 24-hour care.
- How will you pay for it? Medicaid, self/family, traditional long-term care insurance where you pay premiums annually until care is needed, but if you never need care, you typically lose the premiums you paid. Asset-based long-term care insurance through life insurance or an annuity with a long-term care insurance rider is more flexible in that you have something of value even if you never need the long term care benefits. Generally, underwriting is simpler.
- Why plan for long term care?
In working with many clients and families over the years, I have observed that having a plan for one's long-term care is two-fold.
First, it's for the individual so that they have a plan in place that fits their desires for how they wish to be cared for in their aging years - where, by whom, and hopefully, to have a way to pay for that care in the fashion they have chosen for as long as it is needed.
Second, and just as important, it's for those who are left to care for the person who needs long-term care. If the planning has been done properly, especially the financial long-term care planning, it gives the caregivers permission to ask for help/pay for caregivers instead of being determined to provide the care on their own, which may harm them physically, emotionally, or financially.
By creating a long-term care plan, you are giving a gift to your loved ones who may someday be left to care for you, giving them an opportunity to spend quality time with you while the long-term care funding can pay for hands-on care when and if needed.
Like estate planning, long-term care planning can be one of those topics that is hard to discuss and difficult to make decisions around. It is not pleasant to think about our future aging and potential disability. But planning ahead for these risks and making sure that both our financial plans and our families are protected makes good sense. And, long-term care planning is likely one of the best gifts you can give your future caregivers -- the opportunity to make choices for you and for themselves without guilt.
About the author: Sandra D. Adams, CFP, can be reached at 248-948-7900, Center for Financial Planning, Inc. 24800 Denso Drive, Ste. 300 Southfield, Mich. 48033. Securities offered through Raymond James Financial Services, Inc. member FINRA/SIPC. Investment advisory services offered through Raymond James Financial Services Advisors, Inc. Center for Financial Planning, Inc., is not a registered broker/dealer and is independent of Raymond James Financial Services.
This information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Sandra D. Adams and not necessarily those of Raymond James. Raymond James and its advisers do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. The cost and availability of long-term care insurance depends on factors such as age, health and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of long-term care insurance. Guarantees are based on the claims paying ability of the insurance company.