How To Afford Long-term Care

Kiplinger's Personal Finance|March 2019

How To Afford Long-term Care

Your options range from conventional coverage to tapping your life insurance benefits.

Kimberly Lankford

YOU’VE HEARD IT BEFORE:

Long-term-care costs can shatter your retirement nest egg. The average cost of a private room in a nursing home is more than $100,000 per year, and the average amount of time people need some kind of long-term care is about three years.

But there are crucial nuances in real life. A frequently cited statistic says that if you’re 65 years old, there’s a 70% chance you’ll need long-term-care services during your lifetime— but that includes unpaid care by family. Plus, you may need care for only a few weeks or months.

A study by the U.S. Department of Health and Human Services projected that 48% of people turning 65 between 2015 and 2019 won’t need any paid care. But more than one-fourth will need more than $100,000 of care, and 15% will require care that costs more than $250,000. The bill could top $500,000 over five years for someone with dementia in a memory-care unit in a nursing home.

“Insurance would never have been invented if everybody were average,” says Claude Thau, an actuary and long-term-care consultant in Overland Park, Kan.

That’s why it’s important to assess the risks, says Jean Young of the Vanguard Center for Investor Research and co-author of a study analyzing health care costs in retirement. The study concludes, “Even if the probability of incurring expensive care is relatively low, the number is at a magnitude that is hard to ignore.”

Financial planners tend to start talking about longterm-care costs when their clients’ financial focus shifts from raising kids to envisioning retirement. Many people in their fifties and sixties have seen how much long-term care has cost their parents and want to protect some of their savings if they end up needing care themselves.

PERSONALIZE THE RISK

Because the cost of care can vary so much from person to person, it’s essential to look at your own risks, the types of care you want, costs in your area, and your savings and income when figuring out how to incorporate care costs into your financial plan.

Thau recently created a tool that uses long-term care claims data to help planners get a better estimate of the financial risks of long-term care for their clients. Included are questions about gender, age, marital status, geography and the client’s network of potential caregivers.

“It’s a very individual math problem to solve for each client,” says Brooke Salvini, a certified financial planner in San Luis Obispo, Calif., and a member of the American Institute of CPAs’ personal financial planning executive committee. Salvini begins her consultations with clients by explaining the average cost of different types of care using Genworth’s Cost of Care study (www.genworth.com/ cost of care). She then asks questions to help them estimate their own costs, such as whether they plan to stay in the area or move to be near children (care costs can vary significantly by city) and whether they’d like to receive care in their home or move to a retirement community or assisted-living facility. She recommends going on a shopping trip to find out how much the places they’re interested in cost now. The specifics can change by the time you need care, but knowing the costs can give you more realistic numbers to factor into your retirement plans.

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March 2019