Long-term Care: Scare Stories vs. Facts
Save or insure for this potential cost, but the odds are against very long care
Planning for retirement. It’s frightening to ponder the potential cost of taking care of an older you.
It can be very helpful to break this down into two pieces. Annual healthcare costs throughout your retirement for Medicare premiums, and coverage copays are one bucket. The potential for needing long-term care later in retirement gets its own bucket.
That first bucket shouldn’t be keeping you up at night. Yes, the lump sum estimates are indeed frightful — out-of-pocket expenses can be more than $250,000 for a married couple — but once you break that down into annual costs over a 25- to 30-year retirement, it likely becomes a manageable monthly expense that fits into a retirement budget.
The second bucket, for long-term care, is indeed more of a challenge. But it also suffers from some egregious fear-based marketing.
Perhaps you’re familiar with the 70% factoid trotted out every time this issue is addressed. It states that an estimated 70% of people who make it to 65 will eventually have severe long-term care needs before they die. What doesn’t get mentioned is that in the same government report, it was noted that many people who need care, receive it (unpaid) from family. (And for most, the duration isn’t the long slog we most fear.)
To be clear, family care is a double-edged sword. While having family as caretaker is not a drain on a retiree’s budget, it can be a severe drain on family. Spouses doing the caregiving (often women) face physical and emotional challenges. And when adult children step in, it can enormously impact their financial security.
If you want to avoid having a spouse or family step in, then you definitely will need to consider saving more for potential long-term care needs. How much? Well that’s where it gets maddeningly tricky, given we can’t know for sure how long we will need that help. But research can help frame an educated estimate.
A few years ago, Vanguard and Mercer, a benefits consulting firm, took a deep dive into government data. For starters, they estimate that about half of women and nearly 60% of men will never need paid long-term care. Of course, no retirement plan should assume a 40% to 50% chance of failure, so saving for long-term care costs definitely should be on the table. But here too, perspective can make the challenge seem more doable.
For a look at long-term care insurance, see my colleague Jeff Opdyke’s article.
The Vanguard/Mercer research estimates that, when people do need paid care, it is likely to be for a few months or years. Not decades.
22% of men and 23% of women are estimated to need paid care for less than one year.
9% of men and 10% of women will need paid care for between one and two years.
8% of men and 11% of women are estimated to need care for between two and five years.
3% of men and 8% of women will need care for five or more years.
And it’s only a small subset who face a budget-stretching cost. Overall, about half of retirees will have no long-term care costs. Another 26% will have costs below $100,000. For 15% of retirees the estimated cost is more than $250,000.
If you have any reason to think you might fall into that 15% due to chronic conditions, or a family history of cognitive decline, the time to plan around your potential cost is now. Again, don’t be cowed by the lump sum. Here too, you want to break down the challenge into what you want to save today to land you in your later life with the money you need to pay for care.
A certified financial planner can also help you work through other potential strategies. Long-term care insurance and reverse mortgages have deservedly earned scorn for a variety of (unrelated) problems. But both products have cleaned up their act lately, and can be legitimate and smart options when used properly. A fiduciary financial planner can help you sort through those options.