Americans should not forget about the cost of long-term care when preparing for retirement
Preparing financially for long-term care needs can be overwhelming, especially when daily financial pressures and continued economic uncertainty are occupying a family’s time and attention.
The current macroeconomic environment presents a unique opportunity to learn about the cost of long-term care and set a strategy to account for it.
The youngest baby boomers turn 59 this year — meaning that all baby boomers are now of or close to retirement age.
At the same time, states are exploring public long-term care programs, and one state, Washington, is expected to launch its public long-term care program in July 2023. That paves the way for changes in how families fund long-term care needs.
The Costs
Here’s what your clients need to know about preparing clients for long-term care needs.
It’s likely that clients will need some type of long-term care, and that the cost will be significant. Americans 65 or older have nearly a 70% chance of needing some type of long-term care service or support in their lives.
In 2020, before any impacts of COVID-19 were realized, the average cost of long-term care for an individual with private long-term care insurance was $180,000 per insured individual who needed care.
Today, high rates of inflation are continuing to impact families with higher costs: monthly resident fees at independent-living facilities rose by as much as 12% in 2022, according to a March 2022 Ziegler report, and costs for nursing homes and adult daycare services increased 4.8% between August 2021 and August 2022, according to consumer-price index data from the Labor Department.
Meanwhile, in-home provider service costs grew by double-digits in 2021, according to New York Life’s Cost of Care calculator.
Public Program Funding Gaps
These increasing costs are placing a substantial burden on older Americans and the family members financially contributing to their care.
In fact, according to recent data from the New York Life Wealth Watch survey, 18% of Americans who have a financial strategy in place had to change their strategy in 2022 to provide care for a family member, and 24% of those in the “sandwich generation” (Americans who care both for children and aging relatives) did not report feeling confident about their ability to provide financially for their aging relatives.
Federal and state long-term care insurance programs may not address the full need.
Addressing the needs of an aging population is a priority for both federal and state governments, but public programs do not yet account for the full cost of a long-term care event.
For example, Medicare and Medicaid can cover some expenses, but individuals must meet federal and state qualifications for income and assets before receiving support.
Further, a recent study from the NORC at the University of Chicago found that by 2033, more than 11 million seniors aged 75 and older, who are middle-income and unlikely to qualify for Medicaid, might be unable to afford assisted living.
Existing government programs will come under unsustainable stress as America’s aging population grows: In 2019, there were 54.1 million Americans aged 65 or older, according to the Administration for Community Living.
By 2040, there will be about 80.8 million people 65 or older, or more than twice as many as in 2000.
Further, the Social Security Administration reports that 90% of retirees today receive Social Security benefits, in contrast to only 69% of retirees in 1962.
To ease the burden on both federal programs and families, some states are considering legislation that would create state-specific long-term care programs.
Washington has led the way by enacting legislation in 2019.
But, despite the progress that this program represents, as currently constructed, the benefit for families will likely not be enough to cover typical long-term care costs.
Private Funding Arrangements
Preparing early for long-term care costs can help protect retirement assets.
Despite federal and some emerging state efforts to support those with long-term care needs, the burden remains on the individual.
So, what can people do to protect themselves, now and in the future?
Gen Xers, many of whom are currently navigating the challenge of finding affordable care for their parents and shouldering inflation-induced cost increases, should consider exploring long-term care insurance for themselves now – as it’s less expensive to secure long-term care insurance when younger, as policyholders can lock in a lower rate.
An unexpected long-term care event can quickly deplete retirement savings and negatively impact an investment portfolio, especially as the cost of care rises in today’s inflationary environment.
Even if families could fund long-term care expenses out of pocket, most people would quickly exhaust their retirement savings if they needed care for an extended period.
Sharing the risk through a right-sized insurance policy can help reduce the financial and emotional burden of a long-term care event, ensure individuals can receive care in their preferred setting, and help preserve retirement assets.
When evaluating long-term care insurance, help clients look for financially strong insurers with a proven track record that can help lift the burden on families seeking care for a loved one.
Some carriers offer a variety of policy types with a range of features and benefits, including strategies for making the home safer for in-home care, locating trusted local care providers, and helping families manage claims.
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