One of the biggest financial decisions facing retirement planners is the fact that most people will need some form of living assistance in their final years, often referred to as long-term care (LTC). I’m referring to assistance with activities of daily living, such as bathing, dressing, or supervision required by a cognitive condition, such as Alzheimer’s disease. Widely published statistics1 show 70% of those reaching age 65 will need LTC before they die. The life expectancy after someone needs care is about 2.1 years for men, and among women, it is 2.7 years2. Finally, LTC is expensive. A 2019 Genworth report on the cost of care shows the national average cost of a semi-private skilled care facility is $90,155 per year.
Some retirees can cover these costs out of their income and assets without difficulty. There are several options for those who can’t afford to pay the cost out of pocket. These options include both government programs and private-sector financial products. The government option is called Medicaid. Medicaid is the largest payer of LTC services and accounts for 62% of all LTC expenditures3. Medicaid eligibility varies by state, but generally to qualify, you must have a certain level of impairment and limited financial resources. If you don’t currently meet the financial requirements, you must spend down your income and assets on care until you qualify.
The private option is long-term care insurance (LTCI). Estimates show that LTCI currently covers about 7.5 million Americans4. LTCI first came on the market in the mid-1980s and has evolved significantly since then.
Current LTCI products provide comprehensive coverage for all care settings and offer a wide array of coverage choices and options. Most policies require medical underwriting. Someone who already needs LTC or who has a high risk of needing LTC in the future (such as an individual with Parkinson’s disease) would generally not be eligible. The premium is based on a person’s age when they apply, so LTCI may be beyond the means of some older people.
There is no simple solution to this issue. The best course of action is to start planning early while you are still healthy. Project what your costs might be in the future and plan for them while time and your health are on your side.
1Source: U.S. Department of Health and Human Services
2Life Expectancy in Long-Term Institutional Care by Marital Status: Multistate Life Table Estimates for Older Finnish Men and Women. The Journals of Gerontology
3Source: U.S. Department of Health and Human Services.
4Long-Term Care Insurance Facts — Data — Statistics — 2020 Reports. American Association for Long-Term Care Insurance.
Originally published in August, 2013