Separate from your financial plan, you need a "care plan"
Someone turning age 65 today has a 70% chance of needing some type of long-term care services.(1) If you are in a semi-private room, it will cost over $80K per year. On average, you will need 3 years of care, or $240K total. How are you planning to pay for this? If your care plan isn't in writing yet, this will help you get started.
Long-term care is for those needing help with activities of daily living (ADLs) such as eating, dressing, bathing, using the toilet, and transferring to or from a bed or chair. There are a variety of ways to receive this care, such as in your home or in a facility and the costs vary greatly. It is something that can be insured, but it's not as simple as buying a policy and washing your hands of the risk.
If you're over 50, document a care plan and share it with your loved ones
You don't have to be 100% certain of all the details, but document as much as you can, such as that you want to stay in your home for as long as possible.
Start visiting facilities to find a few that you like and can afford. List them in your care plan.
Work with your Financial Advisor to be clear on how you are going to fund your plan - whether it includes buying insurance or including a cushion in your retirement plan.
Speak with your siblings, children or a close friend and communicate your plan.
If you want to age at home for as long as possible, as most people do, start adding modifications as you remodel your home. For example, if you plan to re-do a bathroom, be proactive and add a grab bar to prevent falls.
If you're under 50, educate yourself
Hopefully, you won't need long-term care for another 20+ years. Therefore, you have the advantage of waiting and seeing how the long-term care industry evolves.
Partner with a Financial Advisor that is informed about the current insurance and legislative environment.
Ask your parents about how they plan to age and help them document a care plan. Separate, but equally important, ask your parents about their estate plan.
Staying in your home may not be the best solution
We realize this is not what anyone wants to hear, but staying in your home can be both isolating and dangerous.
Safety Hazards
My Aunt Rose is a fabulous host. Even in her 80s, she whipped up a delicious dinner the last time I visited her with my husband and two children. She even sent us home with 3 different varieties of homemade italian cookies. Months later, my Dad called to say there had been a fire. My aunt woke up early, around 5am, and was drinking coffee when she smelled smoke. It was from an electric strip used for additional heating in the kitchen. It shorted and started a fire. She tried to put it out but it only grew. The house suffered extensive damage, but my Aunt luckily made it out safely. While a fire can happen to anyone, the elderly are especially vulnerable given that they often live alone, can suffer from cognitive issues and are sometimes partially immobile.
Home Upkeep
There comes a time when basic home maintenance is too much to keep up with and the house can quickly fall into disarray. Even if you have children and grandchildren to help, you become completely reliant on them when they have their own busy lives and tight budgets.
Elder Abuse
The National Council on Aging estimates 1 in 10 Americans aged 60+ have experienced some form of elder abuse. There are unfortunately many stories to pull from, but one that stays with me was told by Atul Gawande in his book, Being Mortal. He tells of his grandmother-in-law who was independent, even in her later years. She lived alone and hired some landscapers. After completing the project, the workers demanded an extra $1,000, much more than they had originally agreed upon. She refused but they wouldn't leave her home and continued to threaten her. She ultimately paid them what they wanted, but they came back the next day and demanded more money. Luckily the neighbors called the police when they heard the arguing.
Alternatives to aging at home
We have hopes that as more of our population consists of aging seniors, more affordable support services will emerge. Programs like CAPABLE are trying to demonstrate that aging in place can be safe at a reasonable cost. That being said, long-term care today is still extremely expensive and can throw a wrench in your financial plan if it isn't factored in properly. Here are the costs of the major types of long-term care.
Nursing Home Facility
$6,844 per month for a semi-private room (shared with a roommate) and $7,698 per month for a private room(1). This is the most comprehensive type of care. It includes nursing care and 24-hour supervision.
Assisted Living Facility
$3,628 per month (for a one-bedroom unit)(1). This is for people who need some assistance with ADLs but don't require around the clock care.
Continuing Care Retirement Community (CCRC)
CCRCs are a combination of independent living, assisted living, and nursing home all-in-one community. For example, you can start out in independent living and over the years, graduate to assisted living or nursing care. The appeal is that you remain in the same place, regardless of your changing needs, but it also may cause couples to be split up if they need different levels of care. The price for CCRCs varies widely so it is best to visit a few to get a more accurate estimate. There are two components: an entrance fee and monthly fee. The entrance fee can range from $100,000 to $1 million and is in some cases refundable up to a percentage to your heirs.(2)
There are other options such as group living and housing communities for older people. The best thing to do is to reach out to an Aging Life Care Professional. These are licensed individuals that help you determine your options and get a plan in place.
How to fund your care plan
The places above are not cheap and Medicare doesn't cover long-term care services, such as bathing and custodial care, for the most part. There are exceptions, such as after hospitalization, but it is only for a short period of time. There are government programs, such as Medicaid and the Veterans Health Administration, but you may not qualify. For example, with Medicaid you are required to spend down nearly all of your assets before you are eligible for assistance, and even then, you can't choose your facility.
Buying Long-Term Care Insurance
Pros:
You presumably can use the insurance to pay for the facility and care of your choice.
You will preserve more of your assets since you aren’t paying for care entirely out of your pocket.
Cons:
Long-term care insurance premiums that were expensive to begin with, have in some cases doubled in cost over a two year period. This is causing many policyholders to walk away from policies they have already paid thousands of dollars into.
We've heard stories of how insurance companies can make it difficult for you to finally cash in on your policy benefits. For example, a woman whose husband died from brain cancer in a matter of months said she had to fight the insurance company every step of the way. While this might not always be the case, it happens enough that we're concerned.
Insurance companies are getting out of the long-term care industry altogether. Genworth was the latest company to announce this March that they are no longer selling standalone long-term care policies.
The insurance companies haven't figured out the right formula to handle this complex need and we don't want our clients suffering the consequences while they figure it out. We always recommend speaking with a long-term care insurance broker, but we also educate you on some non-insurance options.
Self-Insure (use your assets to pay for care)
Pros:
If you don't use the money for long-term care, it is still your money. You will have it for other purposes or leave it to your beneficiaries.
You are not dependent on an insurance company. You don't have to worry if they will increase premiums, leave the industry, or fight you over every dollar.
Cons:
You may not have enough saved to self-insure. If you run out of money, you could end up in a Medicaid facility and your beneficiaries would receive nothing.
Meet with our fee-only and fiduciary financial planners to walk you through your options and document a care plan. If you are under 50, our team is staying on top of the latest programs available to seniors and any legislative changes that may affect you in the years to come. We are always happy to field your questions or discuss this during your Annual Financial Review.
Linda Rogers, CFP®, EA, MSBA is the owner and founder of Planning Within Reach, LLC (PWR). Originally from New Jersey, Linda services clients throughout San Diego county and nationwide. She leads the design of PWR's investment portfolios which utilize broad, low-cost investments that integrate environmentally, socially, and governance (ESG) factors.
Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning, ongoing impact-focused investment management and tax preparation services in San Diego and nationwide. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and their advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.