Long term care requires special planning

Boomers who choose to hold onto their home equity and use that to pay for long-term care face their own share of problems. “According to the life-cycle model of savings behavior,” the report states, “a household that anticipates using part of its post-retirement income to purchase long-term care insurance or earmarking housing equity for long-term care will plan for lower consumption both before and after retirement than otherwise similar households.”

Married couples who plan to use their house to finance long term care have a special set of problems. If one spouse needs to be institutionalized, the home must either be sold, forcing one spouse to find new housing; or the yield is limited to how much can be obtained from a reverse mortgage. Of late boomers using home equity to pay for long term care, 65 percent are at risk for downsizing their lifestyle in retirement. Fifty-three percent of older boomers are at risk.