Understanding Long-Term Care

The important question: Are you prepared?

Addressing the potential threat of long-term care expenses may be one of the biggest financial challenges for individuals who are developing a retirement strategy. When our financial plan analysis reveals a need for insurance, we guide our clients here at Kendall Capital through this overwhelming process and introduce them to reputable insurance professionals

The U.S. Department of Health and Human Services estimates that 69% of people over age 65 can expect to need extended care services at some point in their lives. So, understanding the various types of long-term care services – and what those services cost – is critical as you consider your retirement approach.

What Is Long-Term Care? Long-term care is not a single activity. It refers to a variety of medical and non-medical services needed by those who have a chronic illness or disability that is most commonly associated with aging.

Long-term care can include everything from assistance with activities of daily living – when one needs help dressing, bathing, using the bathroom, or eating.  Or they may be able to do all of those things just fine on their own but they have a cognitive impairment that could pose a danger.  There is also a category called “custodial care” when one needs help getting to the grocery store or a medical appointment – often these services go hand in hand with the same care giver.  Lastly, there’s more intensive therapeutic and medical care requiring the services of skilled medical personnel.  This category often comes into play if one needs supervision taking medications, uses oxygen or other medical devices to help maintain some quality of life.

Long-term care may be provided at home, at a community center, in an assisted living facility, or in a skilled nursing home. And long-term care is not exclusively for the elderly; it is possible to need long-term care at any age if you’ve suffered a debilitating accident or illness like a stroke

How Much Does Long-Term Care Cost? Long-term care costs vary state by state and region by region. The national average for care in a skilled care facility (semi-private in a nursing home) is $85,775 a year. The national average for care in an assisted living center is $45,000 a year but often requires a large deposit up front. Home health aides charge hourly so your costs will vary widely based on your needs.  Typically $20-$25/hr will get you a licensed caregiver with a reputable company, but that rate may increase when a nurse is required, for example to administer medications at home

Individuals who would rather not burden their family and friends have two main options for covering the cost of long-term care: they can choose to self-insure or they can purchase long-term care insurance.

Many self-insure by default – simply because they haven’t made other arrangements. Those who self-insure will depend on personal savings and investments to fund any long-term care needs and hopefully have enough saved up in their later years when they need it.  All too often, seniors are on a fixed income budget of Social Security benefits and some pension but neglected to save in retirement or regular brokerage accounts to handle these expenses. The other approach is to consider purchasing long-term care insurance, which can cover all levels of care, from skilled care to custodial care whether in a facility or at home.  Even with long term care insurance, one is still expected to cover costs out of pocket for 3-6 months (think of this like a deductible) and then, they have a limited pool of funds to reimburse themselves.  In other words, the insurance certainly helps, but might not cover all of their costs.

When it comes to addressing your long-term care needs, many look to select a strategy that would help them protect assets, preserve dignity, and maintain independence. If those concepts are important to you, think about what you would do.  Even if you had family that was willing to help, think about the sacrifices they may have to make in order to be your caregiver.  If you haven’t had any personal experience with this issue, ask your friends.  As the Silent Generation is well into their 80s and 90s, it’s become quite common for someone you know who’s been helping their parents through this aging process and no two people are the same.  It’s best to be open minded and plan to have the resources to provide you with the most options if or when the time comes.  Remember, there’s a 69% chance you will need some type of care for some period of your life.  More often than not, we experience gradual changes in our health rather than waking up one day deciding for ourselves that our time is up.  Plan for change and give yourself options…that’s far more realistic.