Let's talk about something that many of us prefer not to think about – long-term care. While it might not be the most exciting topic for your retirement planning, it's incredibly important. Here's why: about 7 out of 10 Americans will need some form of long-term care in their lifetime. That sounds like a scary number, no?
Before you worry too much, let's break down what this really means and explore your options. Most of us hear the term “long-term care” and automatically think of a nursing home. But there’s a lot more to the story to consider. Let’s get into it.
What does long-term care actually look like?
First, some good news – not everyone will need long-term care, and those who do need it won't necessarily need it for a long time. About a third of people who are 65 today won't need any care at all, according to the US Dept. of Health and Human Services. However, if you do need care, women typically need it for about 3.7 years, while men average about 2.2 years.
So how much will this cost? As of 2023, the national hourly cost of a home health aide is $33, but this amount varies drastically according to where you live, which is also true of private nursing homes. The national median cost there is about $117,000 annually, with Alaska costing over $1,100 per day while Missouri is closer to $215.
Do some quick math, and you'll see that even a few years of care can add up to a significant amount – potentially between $166,000 and $433,000, depending on the type of care needed and how long you need it.
What are your options?
The good news is that you have several ways to prepare for these potential costs, and if/when they do happen, you don’t have to come up with that lump sum all at once.
Here are the main approaches we discuss with our clients:
Traditional Long-Term Care Insurance
The first place most people’s minds go when discussing this topic, the rule of thumb for when you might need more traditional insurance is when your net worth is between $200,000 and $2 million. Why this range? If you have less than $200,000 in assets, the assumption is that LTC insurance is not financially viable considering that Medicaid will likely cover your care needs, should they arise.
On the other hand, if you have more than $2 million, the assumption is you can probably self-fund your care, allowing you to forgo the cost of premiums and account for the possibility that you’re in the 30% who needs no care at all. The sweet spot for insurance is in between, although legacy planning can come into play here as well if it’s important to you to pass along as much wealth as possible to the next generation.
Regardless of your net worth, if you're considering buying insurance, it's best to have a policy in place by age 65. After that, premiums can get pretty steep, or you might not qualify at all. Pro tip: check if your employer offers a group policy that you can take with you into retirement, often referred to as being “portable.”
Life insurance with long-term care benefits
Think of this as a "two-for-one" approach, where your life insurance policy adds a long-term care rider, ensuring that either you'll have coverage for care if you need it, or your beneficiaries will receive a death benefit if you don't. While the long-term care benefits might not be as comprehensive as a traditional policy, you're guaranteed to get some value from your premiums at some point.
Self-funding
If you have substantial savings (typically $2 million or more), you might choose to set aside money specifically for potential care needs. This gives you the most flexibility but requires careful planning and disciplined saving. Your HSA can come in handy here as well.
What about Medicare?
Here's something many people don't realize – Medicare does cover some long-term care, but with limitations. Specifically, you can get up to 100 days of care in a skilled nursing facility after a qualifying hospital stay of at least three days. However, Medicare won't cover long-term care for conditions like dementia or general aging needs.
Taking the next step
The best approach for you depends on several factors: your savings, your family situation (do you have family members nearby who could help with care?), your overall health history, and of course your own personal preference. The key is to think about this now, while you have time to plan, rather than waiting until you need care.
Remember, planning for long-term care isn't just about protecting your own future – it's about protecting your family's future too. Many caregivers end up retiring early to care for loved ones, creating a ripple effect on their own financial security. By planning ahead, you're not just taking care of yourself; you're also looking out for the next generation.
What's your next move? Schedule a chat with us to go over your specific situation and create a plan that makes sense for you and your family. The peace of mind that comes with having a solid plan in place is truly priceless.