Few things can test the resilience of one’s financial foundation like the sudden onset of a chronic illness or condition that requires long-term care (LTC). Not surprisingly, the probability of this type of event increases in tandem with longevity.

In fact, the U.S. Department of Health and Human Services (HHS) estimates that nearly 70  percent of people over 65 will likely require some form of long-term care. Despite the undeniable need, a Northwestern Mutual 2014 Long-Term Care Study revealed a number of sobering realities regarding Americans’ state of preparedness.

According to the findings, though three quarters of Americans agree that the importance of LTC planning is greater as Americans live longer, only a fraction have addressed their own care or understand their family members’ wishes regarding LTC.

Long-term care events and the resulting financial and lifestyle implications can impact any age group, the Sandwich Generation being particularly vulnerable. This sizeable segment of the population, usually between 40 and 60 years old, is most likely to be supporting both their own children and elderly relatives. 

Ironically, despite shouldering this significant dual pressure, Northwestern Mutual’s 2014 Planning & Progress Study showed that people in this age group are least likely to consider themselves “highly disciplined” or “disciplined” financial planners.

Fail to Plan

Aside from the emotional and physical toll of caregiving, the economic impact of an unanticipated illness or accident should not be underestimated.  Northwestern Mutual’s Cost of Long-Term Care Study found that the national average cost of a private room in a nursing home exceeds $90,000 a year.  Therefore, it’s not surprising that, in AARP research, nearly half of working caregivers said that caregiving has caused them to use up all or most of their savings.

Similarly, in our 2014 study, more than half of future caregivers stated that they anticipate a hit to their budgets and retirement plans.  Formal care, however, is just a small piece of the puzzle.  Reports show that approximately 87 percent of Americans who need long-term care receive it from informal or unpaid caregivers.  For a family caregiver 50 years or older who leaves the workforce to fulfill caregiving obligations, this could mean more than $300,000 in lost salary and benefits over a lifetime, according to the AARP.

Despite these concerns, one in four consumers in our 2014 study are uncertain about how their long-term care needs will  be addressed. And fewer than a third (29 percent) say that they have addressed the need for LTC within their own retirement plans.  Among Sandwich Generation respondents (ages 45-54) that number slips to 22 percent.

An Ounce of Prevention

The good news is that long-term care options do exist and advisors can play an important role in educating clients on how to protect their income and assets while helping to ensure that they and their loved ones receive the best care possible.  The first step is to encourage a candid conversation with a partner, relative or close friend about expectations around LTC.

Currently, there is a gap in communication that could be contributing to some of the uncertainty around provision and costs of care.  In fact, our Long-Term Care study indicated that only a sliver of Americans understand family members’ wishes regarding future care. And just slightly more than a third claim to have discussed their own preferences.

Once a mutual understanding is reached, an advisor can tailor a strategy that will help provide families with clarity and options in an otherwise unpredictable future.  Throughout the years, we have seen numerous examples of how planning ahead served to mitigate the potential domino effect of LTC events and enhance quality of life during challenging times. 

One particularly notable case involved an oncologist who worked with her parents on an LTC strategy that ultimately enabled her to balance her parents’ wishes to receive care in her home with pursuing her own career.  When the oncologist herself was diagnosed with fibromyalgia and related depression and had to go on full disability, her preparing ahead for a potential need for long-term care afforded her the flexibility to continue caring for her parents despite a reduced income.

In another situation, a father with two daughters who lived in another state was diagnosed with cancer. Fortunately the father had addressed the possibility of needing long-term care in advance, which helped him diminish the stress on his daughters and enabled him to receive hospice care in his own home.

LTC planning can help prevent curveballs from depleting assets and/or derailing professional, lifestyle or retirement goals. More importantly, it empowers people to place the priority where it belongs: on care, rather than cost.