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