Planning for the Cost of Long-Term Care
Preparing financially for retirement often comes with uncertainty. There are countless “what if” scenarios to consider, and one of the biggest concerns for many is the potential cost of long-term care. An extended need for care can create a significant financial burden, making it important to plan ahead.
The Reality of Long-Term Care
According to the U.S. Department of Health and Human Services:
70% of people over age 65 will need long-term care services at some point in their lives.
Approximately 35% of people who reach age 65 are expected to enter a nursing home at least once in their lifetime.
At today’s rates, a three-year stay in a skilled nursing facility could exceed $277,000. Assuming a 4% inflation rate, that same stay could cost more than $518,000 in 15 years.
Clearly, the potential impact on retirement assets can be substantial.
How Do You Plan for Long-Term Care?
When working with clients, we generally consider two primary approaches:
1. Paying out of pocket (self-insuring)
For most people, this can be difficult to assess. However, it is possible to model the cumulative costs of care over time and evaluate whether your retirement assets could cover those costs through a Retirement Feasibility Analysis. Those with stable and adequate pension income may also have more flexibility in self-insuring.
2. Obtaining long-term care insurance
Every individual’s situation is unique, but in our experience, long-term care insurance is worth serious consideration especially if:
Your retirement assets cannot reasonably support at least three years of care—or you want to avoid significantly depleting your assets in the event of an extended need.
Most of your retirement savings are in qualified accounts (IRAs, 401(k)s, etc.), where large withdrawals could create a heavy tax burden and severely impact your asset base.
You prefer not to rely on a spouse or children to provide custodial care.
Features of Long-Term Care Insurance
Long Term Care policies have evolved greatly over the years and many in the industry think that both the cost of LTC insurance and LTC itself may stabilize (although still gradually increase). There are many things to consider when evaluating a policy such as:
Do you already have some kind of LTC coverage as a part of Life Insurance or Annuity you currently own? Would it make sense to “convert” these policies to a LTC policy?
Planning ahead is very important. LTC professionals advise the best time to shop for and purchase long-term care insurance is while a person is in their mid to late 50s.
Consider flexible policy provisions. LTC policies come with all sorts of features that can be customized to reduce the cost (longer elimination periods) or add benefits (shared care).
If you are interested in Continuing Care Retirement Communities (CCRCs), check to see what, if any, LTC services they provide as part of the cost.
Our Approach at Beacon
Planning for the unknown cost of long-term care is a critical part of our Retirement Feasibility Analysis. While Beacon does not sell long-term care insurance—or any other insurance products—we do help our clients understand policy features, evaluate coverage needs, and explore cost-effective options that fit into their broader retirement strategy. The need for long term care services will increase as our society continues to age and planning ahead can save you money and lead to a more comfortable experience for both you and your family.