Life expectancy is increasing, but as a result many people are living longer in poor health. Coupled with rising medical costs and the potential cutbacks on programs like Medicaid, it is extremely important that everyone, especially those in their 50s, begin to address the major components of long-term care (LTC).
In this article and video series I address how you can create a plan that will help meet your future financial and long-term care needs. Check back frequently for more information on LTC, your options, and strategies that can help you plan for it!
What is Long-Term Care?
LTC is a range of medical and non-medical support for people of any age, primarily for seniors. LTC provides assistance with the Active Daily Activities (ADLs) which include:
- Continence (controlling one’s bowels and bladder)
- Transferring (moving in and out of bed)
How Likely Will One Need Long-Term Care?
70 percent of people will need long-term care services at some point after turning age 65.1 As a result, it is important to create a long-term care plan.
How Long Will Long-Term Care Be Needed?
The average length of LTC service is 3.7 years for women and 2.2 years for men. 20% of those who will need LTC will need it for more than 5 years.1
How Much Does Long-Term Care Cost?
Long-term care costs vary depending on the type of care needed. For example, in 2013, one year of care and services at an adult day health care center, cost an average of $16,900. Long-term care costs vary depending on the type of care needed.
Cost of Long-Term Care in Hawaii
- $350/day or $10,500/month for a semi-private room in a nursing home
- $398/day or $11,940/month for a private room in a nursing home
- $4,200/month for care in an assisted living facility (one-bedroom unit)
- $25/hour for a home health aide
- $24/hour for homemaker services
- $70/day for services in an adult day health care center
Cost of Long-Term Care Across The Nation
- $207/day or $6,289/month for a semi-private room in a nursing home
- $230/day or $6,996/month for a private room in a nursing home
- $3,450/month for care in an assisted living facility (one-bedroom unit)
- $19/hour for a home health aide
- $18/hour for homemaker services
- $65/day for services in an adult day health care center
Statistics from U.S. Department of Health and Human Services National Clearinghouse for Long Term Care information website.
How Do I Pay for Long-Term Care?
- Self-Fund – You can pay for your care out-of-pocket and/or have family members take care of you. However many do not want to be a burden to family members and paying anywhere from $50,000 to $100,000 a year isn’t an option. Fortunately there are other ways to pay for it. The median price of nursing homes has gone up 24% the past five years and is expected to go up at that rate. Since people are living longer and often in poorer health, paying out-of-pocket for care will be expensive.
You may not have much left if your goal is to pass assets to your family. Even if you want to start saving at a younger age to fund your care, it still may not be enough. Let’s say a 45-year-old starts saving to fund her care and estimates using it at age 85. With the average length of LTC services needed for women is 3.7 years, the total cost today is $500,000.
If we assume an annual increase of 5%, the future cost of care will be $2,734,796. If she is able to get an 8% annual return, she will need to save $783 a month, or approximately $9400 a year. That amount goes up to $1,792 a month or $21,500 a year if the interest rate is 5%! Not many have that much lying around to save or use for LTC, so this option may not be best for most people.
- Government Funding – In order to qualify for programs like Medicare and Medicaid, there are many limitations and restrictions. Medicare is a federal program and in order to qualify you have to be 65 or older, have certain disabilities, or have permanent kidney problems. Medicare does not pay for most long-term care services, but will help pay for a short stay in a skilled nursing facility, for hospice care, or for home health care if certain conditions are met.
Medicaid is a joint federal and state program that helps people of low income pay for some or all of their health care bills. For singles the asset limit is $2,000 and for couples $121,220. You can own your own home, but the equity cannot exceed $828,000. There is also a 5-year look back to make sure assets were not given away. You also have to require a certain level of medical care.
To prevent people from giving their assets away, Medicaid checks your financial history five years prior to applying for the program. There are other government programs such as veteran’s benefits, and the Older Americans Act. Many people have too much in assets to qualify and if they have to draw it down, a spouse may be left with little to nothing. I will discuss later some options to help!
- Private Financing Products – There are LTC products that you can purchase with existing assets that can help cover your costs. By doing so, you transfer the cost and risk to the insurer. There are different types of LTC products such as LTC insurance, annuities, reverse mortgages, trusts, life insurance and hybrid policies.
Some of these products however have low liquidity and high fees. It is important to purchase the right type of product, or even combination of products that are in your best interest. Daniel Peters, VP at WealthBridge Inc, states “Since there is no ‘one-size-fits all’ policy, it is important to have a comprehensive financial plan and strategy to make sure it covers what you need. You don’t want to buy too little, or too much.”
With 70% of people over 65 needing long-term care, there is a good chance you will need to make a plan. Here are some things to keep in mind while creating one.
- Identify potential caretakers. For most families the caretaker role falls on other family members, often the child that lives the closest. Unfortunately the child that ends up being the caretaker may spend a significant amount of time and resources, coupled with the added stress and potential loss of income. As a result, I have seen tension and resentment among family members erupt, especially when it comes to splitting the parents’ assets.
The best way to avoid this is to identify the caretaker and create an agreement beforehand. Another option is to update the estate plan or create an employment agreement to spell out the caretaker arrangement. Make sure the agreements and updated estate plans are shared with all family members in advance, so there are no surprises or insinuations of manipulation.
- Create a downsizing plan. According to the National Institute on Aging, home equity is the largest asset for a majority of older Americans. Many face difficult choices to either sell their home to fund their care, relocate, or reorganize their living arrangements. According to Dan Ihara, a Senior Move Specialist who has helped over 500 families prepare a senior moving plan, “We’ve found that some of the biggest challenges older adults face are determining their senior living options as well as when and how to make the move.”
After years of accumulating personal items, it can be hard to let go! But keeping the items can be expensive and burdensome, and trying to figure out what to do with it can be stressful. Create a plan of how you will insure, organize, and distribute your items. Another key aspect is transportation. Is it worth keeping a car and paying the related expenses? Apps like Uber and Lyft make transportation very convenient with potentially less costs!
- Create an Estate Plan. There may come a time while needing long-term care that the quality of life isn’t acceptable. By creating legal documents such as a Medical Directive or Power of Attorney, you can let medical providers and family members know what your wishes for interventions and medical treatments are. Since the last years of life tend to be the most expensive medically, this can give the peace of mind you want with the financial savings as a notable byproduct.
No one wants to be a burden to their loved one, so creating an estate plan can ease this burden. You can create a trust so your family is protected if you become disabled or in the event of your death. Trusts can also be used to qualify for Medicaid or VA benefits while preserving your assets if you need long-term care.