Retirement Planning and the Cost of Long Term Care

Preparing financially for retirement can be riddled with uncertainty and worry.If you think about it, there are literally an unlimited number of variables and “what if” scenarios to factor into your plans.

One of the largest financial concerns for many is the unknown, but potentially devastating cost of long term care.The financial impact of an extended need for long term care can be enormous.

Consider the following:

  • It is estimated that 70% of people over the age of 65 will need long term care services at some point in their lifetime.

  • At current rates, a three year stay in a skilled nursing facility could exceed $200,000.In 15 years, this cost could balloon to more than $400,000.

  • Over the last five years, the cost of assisted living and skilled nursing has increased by about 4.5% annually nationwide.

How should I plan financially for long term care?

In our office, when planning for the cost of long term care, we consider two basic alternatives—paying out of pocket and obtaining long term care insurance (as a note, governmental assistance may be an option for some people).

2013 Cost of LTC Chart

2013 Cost of LTC Chart

How do I know if I can afford to pay out-of-pocket (or self-insure) for long term care?

Unless you are Warren Buffet or Bill Gates, this is a difficult question to answer definitively.However, it is possible to calculate the approximate cumulative cost of care over a period of time and then simulate (through a Retirement Feasibility Analysis) if your assets will cover these costs.In addition, those who have stable and adequate pension income may be able to pay out-of-pocket for long term care.

Are there any “sure signs” that would warrant the need to obtain long term care insurance?

When it comes to retirement planning in general, or specifically planning for long term care, every person’s situation is different.However, we do believe that people should at least consider obtaining long term care insurance under any of the following circumstances:

  1. Your current retirement assets cannot support (at least 3 years) or you do not want your retirement assets to be depleted in the event you have an extended need for long term care.

  2. The majority of your retirement assets are held in qualified retirement plans (IRAs, 401k plans, etc.).The tax cost associated with taking large disbursements from qualified plans could be significant—quickly depleting these accounts.

  3. You do not want to depend on your spouse or children to provide you with custodial care.

Planning around the unknown cost of long term care is a key component of Beacon’s Retirement Feasibility Analysis.If you have any questions or concerns about your personal financial circumstances, please let us know.As a note, we do not sell long term care insurance (or any other insurance products).However, we can work with our clients to help obtain adequate coverage.