Planning for the Cost of Long-Term Care: A Retirement Essential

The saying, “Nobody plans to fail, they simply fail to plan,” and its many variations have been attributed to everyone from Benjamin Franklin to Abraham Lincoln to Winston Churchill. While the aphorism’s origin has proven difficult to pin down, its message remains powerful. Consider this statistic: in its August 2020 inter-agency report on long-term care insurance, the U.S. Treasury states that half of Americans who live to be 65 or older will require long-term care services at some point in their lives, and the costs of such care can be significant. It’s one more reason why planning for the cost of long-term care is an essential part of retirement planning.

What Is Long-Term Care?

Long-term care covers a breadth of services designed to help people meet their health care and personal care needs. These services are typically necessary when an individual is unable to perform the basic activities of day-to-day living on his or her own. The need for long-term care may arise after an unforeseen health setback, such as a heart attack, stroke, or injury due to an accident. Or the need may develop slowly, over time, due to one or many factors.

Long-term care services include minor, short-term assistance, fulltime professional care at home, and care in a nursing home or other facility. Individuals who require long-term care often need help with basic activities such as getting in and out of bed, bathing, getting dressed, eating, taking medications, and using the bathroom. As you can imagine, the costs of long-term care services can add up quickly, creating a substantial ongoing expense.

Calculating Long-Term Care Costs According to a study conducted for Mutual of Omaha Insurance by Long Term Care Group, Inc., a leading industry consulting and management firm, the average cost of a home-care health aide was $61,935.16 in 2021. It’s a sobering figure, especially when you consider that the 2020 US Census reported the median income of an American family as $64,994.

Predicting the cost of future long-term care is even more sobering. Think of someone who is 40 and healthy today, but could require five years of long-term care forty years from now. Factoring in a 5% annual inflation rate, the price of five years of care would increase dramatically by the time that person is 85.

Long-term care costs can vary widely based on geographic location and the type of care provided. Types of care include home-based professional care, which involves the hiring of medical and other professionals to help an individual in his or her own home. A home health aide currently costs around $27 an hour, according to a 2021 study conducted for Genworth Insurance by Carescout research.

Assisted living facilities allow individuals to live in their own on-site apartments while receiving assistance with daily activities and opportunities for social interaction. Assisted living costs

average $4,826 a month, but may vary based on apartment size and amenities, according to the Mutual of Omaha cost of care study. Nursing home care offers 24/7 on-site care. This is the highest level of long-term care and the most expensive. The Mutual of Omaha study places the national average for a private room at $311 a day. That adds up to over $113,500 annually.

Paying for Long-Term Care

It’s no surprise that paying for long-term care creates significant challenges for many Americans. Or that planning ahead is the key to avoiding being financially blindsided. Planning ahead not only helps you choose sensible options should you ever need long-term care, but it also helps ensure that the cost of care does not overwhelm your retirement.

Options for covering the cost of long-term care include personal assets, like savings and investments. You could also sell other assets to generate the necessary cashflow, but be aware that this approach could also produce a considerable tax bill. Discussing the pros and cons of liquidating assets with your tax and financial advisor before doing so is the best course. An accelerated death benefit rider on a life insurance policy can help you pay for long-term care. However, in most cases, this approach will lower a policy’s death benefit and surrender value.

Long-term care insurance is designed to cover long-term care expenses should the need ever arise. It may also offer the most coverage for the lowest cost. Hybrid life and long-term care insurance can help you cover long-term care costs without reducing the death benefit amount if long-term care is not required. So long as premiums are paid, hybrid life and long-term care insurance is a permanent product which grows cash value.

Your Next Move

The options I’ve described can be used individually or combined to formulate your long-term care strategy. While preparing for a future in which you might need help with daily activities or move into a nursing home isn’t fun, the wisdom of doing so is obvious. You’ll have the peace of mind of knowing you’ve planned ahead and that you are unlikely to become a financial burden to others. Talk with your retirement planner and a qualified insurance professional to make informed decisions about long-term care, and no one can accuse you of failing to plan.

Dalih Suchet is a principal with Whitehall Benefits, and is a member of the Jewish Federation Professional Advisory Council