It is often difficult for healthy people to contemplate losing their ability to live independently or requiring assistance with many of the tasks that seem trivial today. But the need for long-term care is more common than most people believe.
The reality is, nearly 7 in 10 people will require some form of long-term assistance during their retirement years, and many have not properly planned for those expenses. For those who need this specialized care, the costs can be financially catastrophic. However, with careful planning, you can minimize the risk to your retirement plans and ensure that you have access to long-term care – should the need arise.
What is long-term care?
Many times, when people consider long-term care, they think only of medical care provided in a skilled nursing facility. However, many illnesses including dementia, stroke, and even old age can complicate daily tasks, and those who suffer from these conditions will often need assistance. Long-term care services can provide professional help to perform these tasks as well as medical assistance for those who need it.
Types of Long-term Care Services
Since needs can vary widely, there are many types of long-term care. These services can be provided in-home or in a residential setting.
In-home
In-home long-term care can include homemaker services and home health aides. Homemaker services help with hands-off needs like cooking, cleaning, and running errands. For those that require more hands-on help, health aide services assist with activities such as bathing, dressing, and eating. Home based services can provide much needed assistance after a sudden injury or illness and can also provide longer-term help for aging adults.
Residential Facilities
For those that require more help than can be provided in-home, residential facilities are available. These include assisted living facilities and skilled nursing facilities. Assisted living facilities provide help with daily living tasks in a residential setting. On the other hand, skilled nursing facilities provide consistent medical care in addition to assistance with daily living tasks.
As you can see, there are many types of long-term care that cater to a variety of different needs. That’s why it’s important to understand the types of care you might need and how likely you are to need them.
What is the likelihood of needing long-term care?
Someone turning 65 today has a nearly 70% chance of needing some form of long-term care in the future. About 65% of people will need in-home assistance, like that received from homemaker services and home health aides. These services are needed for an average of 2 years.
Care in residential facilities is required less often, with 37% of people needing residential care for an average of 1 year. While these average timeframes may seem short, 20% of people need long-term care for longer than 5 years. So, it is important to plan for the possibility of needing care for an extended period of time.
With long-term care needs being so common, it is important to account for these expenses in your financial plan. Especially when you consider that long-term care can have a significant cost.
Long-term Care Costs
Long-term care costs vary by the type of care needed and the region in which you live. Typically, assistance with daily living tasks, both in-home and in a residential facility, is less expensive than the constant medical care received through a skilled nursing facility.
In 2021, the median annual cost of homemaker services in the U.S. was $59,482 and the cost for a home health aide was $61,776. In a residential setting, costs associated with daily living tasks were marginally less expensive. The national median cost of an assisted living facility was $54,000 in 2021.
Skilled nursing facilities offer more specialized medical care, and therefore costs are often higher. In 2021, the national median cost of a semi-private room in a skilled nursing facility was $94,900 and the cost of a private room was $108,405.
How to Ensure Your Long-term Care Needs Are Met
It is a common misconception that Medicare will pay for all long-term care expenses. In some cases, Medicare will cover care received in skilled nursing facilities after an inpatient hospital stay, but this benefit is limited to 100 days and recipients must pay coinsurance for days 21-100. However, in most cases, Medicare does not cover the costs associated with long-term care and you will need to rely on other methods for funding long-term care needs.
Self-funding Long-term Care Needs
One method for funding long-term care needs is to use your personal savings to cover the cost. However, there are important risks to consider when using this method. One of these risks is the high cost of long-term care could drain your resources quickly. For married couples, this could mean that long-term care spending could leave your spouse without the resources they need to maintain their standard of living.
Additionally, long-term care expenditures can reduce the size of your estate. This could impact your ability to leave the inheritance you intended for your beneficiaries. For these reasons, you may want to consider alternative options for funding your long-term care needs.
Long-term Care Insurance
If you want assurance that long-term care needs will not derail your financial plan, long-term care insurance plans are designed to cover the cost. However, this type of insurance is typically expensive and includes an extensive underwriting process – including medical exams and review of medical records.
If you are at high risk or have preexisting medical conditions that make long-term care more likely, you could find it difficult and costly to acquire long term care insurance. Further, long-term care insurance can become more expensive as you get older, so it is important to begin the process early if you plan to purchase a policy.
Another factor that can impact your decision to purchase long-term care insurance is the use-it-or-lose it nature of these policies. Like with most types of insurance, if you don’t use your long-term care insurance, you lose the money you paid in premiums over the years. However, in recent years, new hybrid plans have emerged that reduce this risk.
Hybrid Long-term Care and Life Insurance
Some types of permanent life insurance can be used during your lifetime to pay for long-term care needs. If you have this type of coverage, it eliminates the use-it-or-lose-it aspect because if you do not use the funds for long-term care, they are still paid as a death benefit to your heirs.
However, some of these hybrid policies cap the amount of funds that are available to use during your lifetime. Depending on the insurance amount and the terms of the policy, you could still end up paying for a portion of your care with personal savings.
While there are many benefits to hybrid policies, they have some drawbacks as well. Hybrid life insurance policies typically require underwriting and can become more expensive for older people or those with underlying medical conditions. However, these policies can provide significant benefits if you need long-term care during your lifetime and you could find that those benefits outweigh the cost and hassle.
Since many long-term care funding options become more expensive as you age, it is important to begin planning for long-term care as early as possible. By including long-term care costs in your financial plan early, you can reduce the stress and financial strain of dealing with these issues as they arise.
Plan For Long-Term Care Costs with Financial Fingerprint™ by Meld Financial
There are many methods for funding long-term care needs. So, it is important to discuss your options with an experienced financial advisor to decide how these choices could fit into your financial plan. At Meld Financial, our team of tax, legal, and investment professionals can help you forecast long-term care costs and plan accordingly.
Through our decades of helping clients grow and maintain their wealth, we developed a proprietary wealth management process called Financial Fingerprint™. This comprehensive financial plan is quick to assemble, easy to understand, and simple to modify as your circumstances change. Most importantly, it accounts for common threats to your financial future, including the cost of long-term care.
Contact the team at Meld Financial today to discuss your long-term care funding options and to get started with Financial Fingerprint™.
