When my mom was 79 years old, she had a massive stroke and it took 2 years to get her life back to "almost normal". During that time I was her primary caretaker, which did have its ups and downs. I tell you that to tell you that this happened to my family, and it can happen to yours or anyone else's as well.
This is such an important consideration for us Boomers today because we Americans are living longer, and it is critical that we address long-term care costs when considering retirement planning.
Back in 1950, the life expectancy for a man was 67 years and 72 years for a woman.1
Today, according to the Social Security Administration, a 65 year old person can expect to live an additional 19 to 21 years on average. What's more, the Social Security Administration says that a quarter of those who are 65, will live to age 90, and one in 10 people will live beyond age 95. 2
Living longer is certainly good news but only if we have a financial strategy that accounts for a retirement that could last 30 years or more and includes solutions for potential long-term care needs.
So, we need to talk about the assumptions associated with costs of care.
A survey conducted by Genworth in 2016 found that:
- the average American significantly underestimated the cost of in-home long-term care by almost 50%.
- four out of five adults underestimated the costs associated specifically with home healthcare in general.
- and despite in-home care being the most popular care option, nearly one-third of Americans incorrectly estimated the costs of these services to be under $417 per month 3 when, in reality, in 2016 the national median rate was $3,861 per month for an in-home aide or $3,813 per month for homemaker care4.
NOTE: An in-home aide is a healthcare professional coming into the home to help with care, and homemaker care is when a family member is providing in-home care.
To delve a little further into understanding the true cost of Long-term Care, take a look at these numbers from Genworth.
The [national] median costs* for 2018 were:
- Assisted Living Facility: $48,000 / year
- Home Health Aide: $50,336 / year
- Nursing Home (semi-private): $89,297 / year
- Nursing Home (private): $100,375 / year
- Costs increasing at 3-4% / year
FYI, Genworth has a wonderful website, where you can literally plug in your state and it will tell you what the costs are in your state. (Sources below).
Now, focus a moment on this 5th bullet point in red.
- Costs are increasing at 3 to 4% a year. Now, most of us around 65 today, are probably not going to need to deal with these numbers today. However, we most likely will 20 years from now!
- In 20 years, at 3 to 4%, these numbers could more than double. So if you or I need care and we're talking $100,000 to $200,000 a year, we're probably going to need it for three to four years maybe.
- If it's a husband and a wife, maybe they both need it. We could be talking about some, massive expenses. So if it happens, it could cost you a lot of money.
Because there are so many misconceptions and assumptions surrounding long-term care, it’s important to be clear on what we mean by long-term care:
Long-term care encompasses a variety of services that include the need for both medical and non-medical assistance. Typically, long-term care is associated with any personal or medical assistance an individual may need to accomplish the Activities of Daily Living or ADL’s.
These activities include things like:
Continence & Toileting
Transferring/moving from seated to standing and getting in and out of bed
Typically, when thinking of long-term care, people think of nursing homes and skilled nursing care. However, the majority of long-term care services are actually provided at home, in adult day health facilities, or in assisted living facilities.
So with that back story, let me share the four myths of long-term care that I hear from people when asked the the question...
“How have you prepared for a potential long-term care situation?”
Myth #1: “It won’t happen to me.”
Few people want to face their own mortality, and it’s human nature to think that bad things are more likely to happen to others than to yourself.
So, it’s not surprising that most people don’t consider long-term care at all.
In fact, in a recent long term care study conducted by AP-NORC at the University of Chicago, found that about half of those 40 and older lack confidence that they will have the financial resources to pay for the care they will need when they get older and between 2013 and 2018, only about a third of those age 40 and older say they have set aside money to pay for long-term care expenses. 5
Furthermore, according to a 2017 Long-Term Care Marketing and Thought Leadership Research Survey conducted by Versta Research on behalf of Lincoln Financial Group, only 14% of Americans have talked with a financial professional about how they would pay for long-term care. 6
Denial is powerful and can be detrimental in retirement planning. The reality is that whether you live a long, healthy life or are likely to get sick due to an unhealthy lifestyle, chances are, you'll need long-term care either way.
Myth #2: "Medicare & Medicaid will cover long-term care expenses."
Many people think that health insurance, Medicare, or Medicaid will take care of their long-term care needs. However, this is not the case.
Medicare doesn’t provide long-term care coverage.
In fact, Medicare typically only covers a portion of skilled nursing facility costs for up to 100 days, and a qualifying hospitalization must occur first to activate this benefit. Also, it only provides limited amounts of coverage for certain types of home care.
What about Medicaid?
Medicaid only provides long-term care benefits to people with limited income and assets.
If you are considering this option, you would need to spend down assets, including real estate and annual income to position yourself in a way that demonstrate your need for government support.
And there are other drawbacks to taking Medicaid:
- There are limits on the amount of assets a spouse can own and the amount of income you can earn.
- When assets are spent down, it creates tax exposure.
Employer-Sponsored Plans & Private Health Insurance…Most employer-sponsored or private health insurance options cover the same kinds of limited services as Medicare. If they offer long-term care services, it is typically only for skilled, short-term, medically necessary care.
Myth #3:"I plan to self-insure, so I’m good."
A lot of people think they will be able to cover long-term care costs out of pocket. However, long-term care costs can cause people to draw down their savings much faster than anticipated. You have worked hard to prepare for retirement and likely, you have spoken to a financial professional about a strategy. However, if a plan for LTC hasn’t been included, your retirement strategy is at risk.
Keep in mind:
- Accessing funds to pay for insurance and long-term care costs can be taxable events – further reducing your retirement funds.
- Of course, there is the added stress that comes with trying to figure out how to pay for medical expenses while being in a vulnerable situation.
- Also, it is important to consider how an event like this would impact the healthy spouse. If all your retirement funds are being diverted to medical expenses, what is the remaining spouse going to use to live on?
This is why it is essential to plan ahead.
Myth #4: “My family will care for me.”
This is the one I hear the most.
Yes, in past generations, oftentimes, spouses and children did take care of their loved ones when they were ill.
It’s easy to assume that family will be able to care for a loved one’s needs without considering the specifics. While millions of Americans do so today, it is important to consider the impact of providing care.
If we set the financial burden aside for a moment, there are still many other considerations to weigh, such as the effect to careers, personal lives and family dynamic.
According to the Genworth Circle of Care Beyond Dollars Summary conducted in 2015:
- 1/3 of caregivers surveyed provided 30 or more hours of care per week. Half of those who do so estimate that they lost around 1/3 of their income.
77% of caregivers missed time from work.
43% said that providing care impacted their personal health and well-being.
41% of caregivers experienced negative physical side effects such as depression.
33% of caregivers reported an extremely high level of stress.
It is also imperative to consider the full extent of providing or having care provided by a loved one. Consider the physical strain of lifting, bathing and helping with activities of daily living.
Is this something you are physically and emotionally prepared to do or have your spouse or child do for you?7
I can tell you from personal experience, that it an emotional roller coaster which you really can't imagine until it happens to you.
Please reach out to me about some of the creative solutions that have come about in recent years or any questions /concerns you may have about this information.
Best to you always,
Artie "the Caretaker" Bernaducci
* https://www.genworth.com/aging-and-you/finances/cost-of-care.html Accessed Jan. 14, 2019
4 Genworth 2016 Cost of Care Survey, conducted by CareScout, May 2016. CareScout is a Genworth company.