Apart from inadequate savings and a reduced Social Security benefit, declining health that requires long-term care was the most frequently cited retirement fear of Americans recently surveyed by Transamerica. That is encouraging because it is important that pre-retirees are aware of this growing old-age financial challenge and start to prepare for it. Indeed, long-term care has to do with the services and supports necessary to meet health or personal care needs over an extended period, e.g. care for chronic illnesses or disabilities.
The U.S. Department of Health & Human Services estimates that most Americans turning age 65 will need long-term care services at some point in their lives, and these expenses can be significant. Just look at earlier data from Genworth which showed that the median annual cost for a private room at a nursing home was nearly $100,000 last year. That could jump by more than 80 percent over the next two decades, assuming a conservative 3 percent inflation rate. What is worse is that the average nursing home stay is two years, according to recent academic research, but 1 in 20 of these individuals have stays of four years or longer. That is just one example of a potential long-term care cost, and by any measure those are substantial figures that can easily take a big chunk out of your retirement savings.
Long-term care insurance can help, but only for those who purchase it before a chronic condition or some other need for professional assistance arises. According to Barron’s, “the sweet spot for considering long-term care insurance is typically for those with $250,000 to $1.5 million in assets … buy early to qualify for the lowest premiums; most people buy in their 50s.” However, “long-term care insurance covers only a few years of care. And in those few years, it will pay only up to $250 to $300 per day—not a hard number to reach.” That only increases the importance of saving as much for retirement as possible and incorporating potential long-term care costs into your old-age financial plan.
On the bright side, 35 percent of pre-retirees in a new Northwestern Mutual poll who said that they “recognize the pervasiveness of long-term care events” responded by increasing their saving rate. Similarly, a third of Americans recently surveyed by Lincoln Financial acknowledged that they will likely require long-term care at some point in their lives, and half expect their parents to require long-term care. Almost all respondents (97 percent) agree that “families should discuss plans for long-term care before they actually need it,” and 90 percent believe that financial advisers should discuss long-term care planning with clients. There is still room for improvement, though, as only 14 percent of surveyed adults said that they have talked with an advisor about how they would pay for long-term care.
Sources: Transamerica, U.S. HHS, Barron’s, Genworth, PNAS, Northwestern Mutual, Lincoln Financial GroupPost author: Charles Couch