One of the biggest fears among retirees is that health-care expenses associated with long-term care will deplete their savings.
New research from T. Rowe Price finds that 65 percent of retirees are concerned about the cost of long-term care and services such as nursing homes, assisted care and home health care, and 51 percent are concerned about out-of-pocket health-care expenses.
This is not surprising given that the median annual cost of a semi-private room in a nursing home tops $90,000 and the median assisted living charges now approach $50,000 a year.
“With that in mind, fear of these unknown costs could be having an effect on retiree spending patterns,” the research report said. “Other research around retiree spending shows that many retirees cautiously spend their money. In particular, those with higher assets tend to spend down at a slower rate.
“This behavior is likely driven by uncertainty on many fronts, such as market risk, longevity risk and the future cost of medical care and long-term care. It’s more about fearing the storm of the century than a rainy day,” it explained.
The research pointed to three key insights:
- The likelihood that health-care costs in the final two years of someone’s life will inevitably deplete their finances in retirement is low, although the concern is undoubtedly real.
- Among non-Medicaid recipient retirees, nearly half have no nursing home expenses during their final two years of life. Even after age 90, there is a less than 10 percent chance that health-care costs will exhaust their assets.
- When planning for late-in-life health-care expenses, one should weigh costs vs. preference when it comes to insurance, care provided by family or a facility and whether there is a strong desire for asset preservation or a bequest.
Although the numbers suggest it’s unlikely that health-care expenses incurred during the last two years of life will exhaust people’s assets among the non-Medicaid population, the possibility can’t completely be ruled out. Therefore, it’s necessary to plan.
“One has to determine whether or not they have enough money to self-insure or if a better option is to purchase long-term care insurance (LTCI) or a hybrid product that can offer both long-term care coverage as well as a death benefit,” the report said. ”An alternative consideration may be to purchase a product designed specifically to provide income in later years, such as a deferred income annuity.”