Six Options for Long-Term Care Planning
Roughly 70% of adults aged 65 or older will need at least some long-term care, and the average length of stay is 3.2 years.
Source: A Place for Mom (2023)
Because of this everyone needs a long-term care plan. However, long-term care insurance is just one way to pay for care. There are 6 common ways to fund this expense.
1. Long-term care insurance – This is the most straightforward solution where you pay for insurance to cover the risk in the same way that you likely bought life insurance, homeowners' insurance, or any other type of insurance.
Cost estimate: $300-$700+/month depending on the coverage amount. $503/month is an actual estimate from Mutual of Omaha based on a 60-year-old female in VA applying for $200/day for 3 years with 3% inflation increases).
According to the "The FLTCIP 2021 Cost of Care Survey” the national average for care is roughly $159-$246/day depending on the level of care.
2. Self-insure: Instead of relying on insurance, using the example above, if you are 60 years old and plan to need care for 3 years starting at age 85, you could calculate what would be needed to cover the same benefit an insurance company would pay. For example, $200/day with 3% inflation ($418 by age 85) for 3 years is $457,000. If you assume you earn a 5% rate of return (not guaranteed), you would need to set aside $135,000 today for it to grow to $457,000 by age 85.
3. Home Equity – People often consider their home a quasi-long-term care policy. This can certainly be the case but it’s important to know what the plan would be. For example, would a married couple where one needs care, sell the home and downsize or take a mortgage out?
4. Life-Plan Communities – There are an increasing number of communities that offer higher levels of care at no additional cost OR a guarantee that once your resources are depleted there is no cost. The tradeoff is that it often costs more in earlier years when you are healthy so they can fund those expenses for others. In addition, most communities require a health screening to get in so if you already have a diagnosis requiring care, it’s unlikely you will be accepted.
5. Medicaid – You do have the option of depleting assets and going into a Medicaid facility. These are often not ideal compared to private facilities but are not as bad as many make them out to be. However, the quality is specific to your area so if your plan is Medicaid, I suggest touring local facilities to see if you are comfortable with the location.
6. Family & Friends – No one likes to talk about this but this is one of the most common ways that people receive care if they don’t have the resources. Unfortunately, most families don’t discuss this until it’s happening leading to tense relationships between children and siblings.
Long-term care planning is not something many like to think about, but the reality is that it will be part of “The Plan” for the majority of people. Having a quality plan in place is necessary to have peace of mind throughout your retirement years.
Happy Planning,
Alex
This blog post is not advice. Please read disclaimers.