For many retirees, the early years of retirement are filled with activity: travel, time spent with friends and relatives (especially grandchildren), volunteer work, hobbies, and perhaps even a part-time job or “second career.” Especially for those who still enjoy good health, this is the time for crossing items off the “bucket list” and making good on all those things they planned to do when they had more control over their time.
The later years of retirement, however, often have a different feature. Increasing age is often accompanied by increasing health issues that affect mobility, self-sufficiency, and, for many, even the ability to make proper decisions due to loss of cognitive function. Sometimes, these age-related deficits create the need for long-term care, either by a home-health aide, a family member, a long-term care facility such as a nursing home, or some combination of the above. The need for long-term care is indicated by an individual’s inability to perform two or more activities of daily living (ADLs), such as bathing, using the toilet, dressing, or feeding oneself.
What Is Long-Term Care?
Many people assume that the expenses of securing assistance with such necessary tasks would be covered by Medicare, but they are not. While Medicare will usually cover a period of up to 100 days in a rehabilitation or skilled nursing facility (SNF) for persons recovering from illness or injury, it will not pay beyond that, since such needs typically fall under the definition of long-term care.
This can create a problem for many retirees. According to a recent study conducted by the American Association for Long-Term Care Insurance, the typical person reaching age 65 in 2024 can expect to live another 20.5 years. Of those, 56% are expected to need long-term care at some point during their lifetimes; the period of need could be anywhere from less than a year to more than five years. Statistically, the average length of the need for LTC for people who are 65 is two years, and only 39% of men will ever need more than a year in a nursing home. For women, who statistically live longer, the figure rises to 51%.
What Does Long-Term Care Cost in Retirement?
As one might expect, the cost of providing long-term care can be considerable. Medicaid, a government program, does cover some of these costs, but it is only available to persons of very limited means. Meanwhile, according to long-term care insurance (LTCI) provider Genworth, costs for services like extended stays in a nursing home, home health aides, or adult daycare and assisted-living facilities can range from $22,000 to more than $100,000 per year.
Is Long-Term Care Insurance Worth It?
Long term care insurance (LTCI), issued by private insurance companies, is designed to cover costs incurred for types of healthcare assistance for elderly and disabled persons that Medicare and Medicaid don’t cover. Like most types of insurance, LTCI is usually less expensive the younger and healthier the applicant. An LTCI policy for a 55-year-old male that provides a $165,000 total lifetime benefit may cost about $2,200 per year; the same policy for a female of the same age could cost about $3,700. Most policies guarantee a daily benefit to pay for long-term care services, and the benefit can range from $50 to $250 per day. Policy provisions and costs vary by state and insurer.
The key, of course, is planning. For those approaching retirement, it is vital to consider the likelihood of long-term care in the future and to take steps to cover those costs well in advance of the retirement years.
How Does Dementia Affect Income Planning?
For many persons of advanced age, reduced cognitive function is a concern. Especially where financial planning and protection of resources is concerned, advance planning is key. In addition to income protection strategies such as LTCI, advance legal and estate planning can protect aging persons from the vulnerabilities associated with Alzheimer’s Disease and other forms of dementia.
It is important for everyone—not just aging persons—to have durable powers of attorney assigned to a trusted individual or entity. The assignee is thus authorized to make important financial decisions for the assignor when they are no longer capable of doing so for themselves. In some cases, a living trust may be called for. This arrangement sets aside assets that the trustee can use to provide for the care of the person who establishes the trust. A qualified legal expert can assist with creating the necessary documents well in advance of the time of need.
At The Planning Center, we know that retaining independence and protecting assets are central considerations for many approaching or in retirement. If you have questions or concerns about covering the costs of long-term care or any other important financial matter, we are here to help you find the answers you need.
