The price of long-term care has become an increasing worry among those of all ages as they wonder, “If I need it at some point in my life, how will I pay for it?” As long-term care costs continue to rise more rapidly than overall inflation, they are projected to place an additional financial burden on senior living expenses and retirement portfolios across the country.
According to the National Institute of Aging, “long-term care involves a variety of services designed to meet a person's health or personal care needs during a short or long period of time. These services help people live as independently and safely as possible when they can no longer perform everyday activities on their own.” Common measures of “qualifying” long-term care expenses are when a person can no longer perform two of the six activities of daily living (or ADLs): Eating, bathing, dressing, transferring from bed to chair, toileting and continence.
The U.S. Department of Health and Human Services notes:
- Someone turning age 65 today has almost a 70% chance of needing some type of long-term care services and support in their remaining years.
- On average, women need care longer (3.7 years) than men (2.2 years).
- One-third of today's 65-year-olds may never need long-term care support, but 20% will need it for longer than five years.
Long-Term Care Options
Some of us may be lucky and never need assisted care. However, those who do end up in long-term care may face costs of varying degrees as it can take many forms, such as a home health aide, independent or assisted living, or even nursing care in a semi-private or private room. In turn, this can happen for a short or long period of time, which obviously has implications for the incurred costs of care—aside from the inflation rate that this type of care will experience.
A home health aide helping for several hours each week may cost around $15,000 per year, while private room nursing care costs can quickly reach $100,000 per year. Moreover, that pricing can also be highly dependent on where you live. Lastly, the inflation of these costs also depends on the type of care. According to Genworth, a leading private insurer, private room nursing care costs increased 2.4% from 2020 to 2021 nationally, while a home health aide became on average 12.5% more expensive in that same time frame.
Therefore, individuals should consider what type of long-term care they would desire, if options are available. For example, would you want to stay in your home or go to a community with “graduated” care—which offers care on the low end of the scale like independent living, all the way to the high end like nursing care? Some find they don’t have a particular preference. The important part here, however, is to at least give it some thought and set the right expectations of your wishes vis-à-vis what might be financially feasible.
Many seniors find they prefer to stay at home, but additional considerations arise. Will you be comfortable letting someone in? How accessible is your home? Furthermore, as previously mentioned, this type of care (for example, a home health aide) is rapidly becoming more expensive, due to an increasing lack of workers willing to do the job for low pay. Therefore, at-home care costs are quickly catching up with costs for care at a facility.
Nevertheless, a facility or “community” still tends to be more expensive. On average, a private room in a nursing home facility in Illinois costs approximately $85,000 per year, while in California the average state-wide cost is $146,000. Nevertheless, many facilities offer different ways of paying for them. For example, facilities can charge an “entrance fee” at different price points, and the higher such down payment, the lower the monthly fee thereafter becomes. Moreover, an entrance fee can be partially refundable—that tends to happen at the higher price points too. A facility can even charge a non-refundable fee, which is usually several thousand dollars, to be included on a waiting list.
Rising Costs of Care
It doesn’t take an advanced degree in mathematics to figure out that long-term care can get very expensive very quickly. The majority of individuals may resort to self-insuring. While this care may never arise in their lifetime, if it does, the costs may strain and even deplete their retirement portfolio.
Those lucky enough to have purchased stand-alone long-term care insurance several decades ago are now facing rapidly rising premiums. Insurance companies are raising rates as they try to cover higher-than-expected claims as Americans are living longer than ever.
Most insurance companies no longer offer this type of straight long-term care insurance. Therefore, the new kid on the block is a “combo policy,” which includes a life insurance policy with a “critical” or “chronic” illness rider attached to it. The rider can have different names and it allows the insured to access a portion of their death benefit to pay for long-term care costs if these qualify according to the terms of the policy. In other words, you get one big bucket of benefits that can be used as life insurance or to potentially pay for qualified long-term care, should that arise. Put simply, you get a benefit no matter what.
Obtaining insurance is obviously contingent on insurability, age and health, so it may not be an option for some. Therefore, it is important to evaluate this insurance path early, while you are still younger and healthier. However, many may not consider this option at all or do so before it’s too late. When you are self-insuring against this type of care, think about what long-term care may mean for you and set the right expectations—and communicate your wishes to family members.
For more than 100 years, the experts at Busey Wealth Management have been helping clients plan for the future. To learn more about our comprehensive services, visit busey.com/wealth-management.
This is not intended to provide legal, tax or accounting advice. Any statement contained in this communication concerning U.S. tax matters is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties imposed on the relevant taxpayer. Clients should obtain their own independent tax advice based on their particular circumstances.
This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities.
This presentation is for general information purposes only. It does not take into account the particular investment objectives, restrictions, tax and financial situation or other needs of any specific client.
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