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Financial Planning, Retirement

Include Long-Term Care Costs In Your Retirement Plan

5/1/19 8:00 AM

iStock-626627280.jpgApart 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 in an updated Transamerica survey we looked at last week. 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 while they are still young. Indeed, as a review 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 an American turning age 65 today has almost a 70 percent chance of needing long-term care services at some point in the future, and these expenses can be substantial. Just look at the most recent data from Genworth which showed that the median annual cost for a private room at a nursing home exceeded $100,000 for the first time last year. That could jump by another 81 percent over the next two decades, assuming a conservative 3 percent inflation rate. What is worse is that these and other LTC expenses can vary significantly based on where you live, e.g. the median annual cost for just a semi-private room at a nursing home in Connecticut last year was $151,475, compared to $75,347 in Alabama. Further, although the average nursing home stay is “only” two years, according to recent academic research, 1 in 20 individuals have stays of four years or longer.


Those are just a few examples of potential long-term care costs that by any measure are major outlays that could 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 an earlier Barron’s analysis, “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.” All of these figures should only increase the importance of saving as much for retirement as possible and incorporating potential long-term care costs into your old-age financial plan.



Sources: TCRS, U.S. HHS, Barron’s, Genworth, PNAS, Lincoln Financial Group

Post author: Charles Couch


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