What Is Long-Term Care? Breaking Down the Basics for Retirement Planning


Chances are you have heard of long-term care, but how does it come into play in retirement? What are the chances that you will need long-term care? How much will it cost? It’s important to consider these questions as you think about how you will manage healthcare expenses in retirement.

If your goal is to have a financially secure lifestyle, then you may want to treat the odds of you (or your spouse) needing long-term care as a fact. As we will see later on, the odds of some long-term care needs go up as people progress in their retirement years. This possibility can derail even the best-laid retirement plan if it isn’t adequately accounted for in retirement income planning projections. Nor will Medicare pay for many long-term care services and supports, as is often believed.

In this article, we will go over the basics of long-term care, how much it can cost you, and some strategies that can give some financial relief so that long-term care doesn’t drain your retirement savings.

What is Long-Term Care?

Long-term care is a type of living care provided by a professional of some sort. The care professional can be a nurse, a home health aide, or another provider who is trained to help people who can’t perform at least two out of six activities of daily living by themselves.

In healthcare circles, activities of daily living are known as ADLs for short. The six ADLs are:

  • Eating
  • Bathing
  • Toileting
  • Transferring
  • Continence
  • Dressing

What Are the Three Basic Levels of Long-Term Care?

Long-term care services can be given to people on three separate levels: home healthcare, assisted living care, and nursing home care. Let’s break down each level of long-term care below:

  • Home healthcare – This is where a professional such as a nurse comes to the home of the patient and administers whatever type of medical care is needed. This is the most popular form of care because it doesn’t require the patient to leave their home. In retirement circles, it’s part of what is called “aging in place.”
  • Assisted living care – This level of care requires the patient to move into a community where many services are provided for them. Those services may include housecleaning, cooking, and other tasks that the patient may no longer be able to do. Medical professionals stand ready to help those in the community who need them.
  • Nursing home care – This is the highest level of long-term care. Here, the patient moves into a nursing home and is constantly monitored by skilled workers and medical staff. This is the most expensive type of care that one can get, with a private room costing thousands of dollars per month.

How Much Does Long-Term Care Cost?

The cost of long-term care can vary widely. It depends on the level of service that you need, your geographic location, and other personal factors such as your age and health condition. That being said, all forms of long-term care generally require a major investment of capital in one way or another.

One survey conducted by a major insurance carrier, Genworth, shows that patients in the Philadelphia metro area could expect to pay about $64,000 per year for in-home care in 2021. That was a whopping increase of 11.8% compared to the year before.

Adult daycare costs about $21,000 per year, and an assisted living facility costs about $64,000 per year. But a semi-private room in a nursing home costs over $137,000 and a private room runs around $155,000 per year.

In Kansas, home healthcare and assisted living facilities run around $55,000 per year. On the other hand, a semi-private nursing home room costs about $75,000 per year, and a private room costs about $82,000 per year. So, you can see that prices vary substantially according to location.

Patients who have dementia will need an average of $357,000 worth of care before they die, according to the Alzheimer’s Association. The average savings of a couple in their sixties is about $220,000. This is why long-term care insurance or other financial strategies for long-term care are an important part of retirement planning.

The costs of long-term care are rising quite a bit faster than overall inflation, so that might be good to remember as you put together a plan for long-term care in retirement.

What Are the Odds That Someone Will Need Long-Term Care?

If you turn 65 this year, the odds are at least 70% that you will need some form of long-term care before you die. The odds of this are higher for women than men, but that is the average.

There is more than a 40% chance that you will end up in a nursing home at some point. Perhaps most foretelling about these odds is the trend that 40% of individuals receiving long-term care today are between the ages of 18 and 64.

What is the Average Age for a Long-Term Care Claim?

A recent study of over 5,000 long-term care insurance policyholders conducted by the American Association for Long-Term Care Insurance revealed that the average age for those who submit claims is 80 years old. This number is down slightly from the results of their 2018 survey, where the average age a claim was filed was 86.

So, that can mean that long-term care needs and spending might go up especially when someone reaches their 80s.

How to Pay for Long-Term Care

There are several ways that you can pay for some or all of your long-term care expenses. Perhaps the most straightforward solution is to buy a long-term care insurance policy, also known as “LTCi.” These policies may have a monthly or daily limit on the amount that they will pay, and coverage will last for a pre-set period of time.

Another option is to buy a life insurance policy that has accelerated benefit riders, also called “living benefits.” In certain situations, the riders will pay out a certain portion of the death benefit while the insured is living if they unable to perform at least 2 out of the six ADLs. Many life insurance policies today have chronic or critical illness riders that will pay out a monthly or annual amount if needed.

Many annuities now also offer protection against long-term care costs by doubling or tripling their monthly payouts if the insured meets certain criteria. This increased payout can last anywhere from one to five years, depending on the carrier and the specific annuity product being used.

If you can’t qualify for life or long-term care insurance and have no money in annuities, you can still do the Medicaid spend-down strategy. This is where you spend down your assets to a very small sum of money, such as $2,000, so that you will qualify for nursing home care in a state-run facility.

However, these facilities are usually not nearly as nice as private facilities, and it will cost you most of your net-worth to do this. Also keep in mind look-back periods for Medicaid qualification.

Finally, if you have the cash, it may make the most sense to simply self-insure and hope that you won’t need care. But that can be risky, especially as healthcare costs rise. Also, you may not wish to fork out a lot of your hard-earned retirement dollars for long-term care.

If that is the case, these insurance products can pay a multiple in benefits for each dollar of premium put in. Talk to your financial professional if that dollar-maximization play sounds appealing to you.

How to Plan Ahead for Long-Term Care Costs

If you are in your fifties and are making out your retirement plan, now is the time to buy long-term care insurance (or potentially life insurance or annuities with the long-term care benefits as mentioned earlier). LTCi will be much more affordable now than it will be when you are in your 60s or older.

If you have hired a retirement financial professional, make sure that they incorporate what will happen to your assets if you need some form of care. You can also move some of your retirement plan money into an annuity with long-term care benefits that protects your principal while still growing.

The Bottom Line on Long-Term Care and Retirement

The importance of planning for long-term care can’t be overstated. To avoid financial surprises or other unpleasant mishaps, it’s good to start looking at this possibility long before you need it after you retire.

Consult your financial advisor for more information on long-term care and how it can impact you. They can guide you through what they have seen for other people’s experiences and some strategies to guard against the high costs of long-term care should you need it.

If you are looking for a financial professional to assist you, you may look at someone who is independent versus captive. Or in other words, someone who has the business freedom to explore options from multiple insurance and financial companies instead of one parent financial company.

If that sounds like a fit for your situation, many independent financial professionals are available here at SafeMoney.com. You can get started with an initial, complimentary appointment to discuss your financial situation, goals, and concerns. Connect with someone directly by visiting our “Financial Professional” section. Should you want a personal referral for yourself, please call us at 877.476.9723.

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