Let's Talk About Long-Term Care

June 23, 2023

Q: I’m watching a friend’s parent deplete an alarming amount of money because of a prolonged medical issue. How do I know if I am prepared to face something like this financially?


A: Most people don’t like to discuss the potential of a serious health event or the long-term care that would be required, but it is extremely important. As the population demographics trend older and longevity increases, it is becoming even more critical. Dale Carnegie famously said, “Inaction breeds doubt and fear. Action breeds courage.” Unfortunately, due to doubt and fear, this topic is rarely discussed and frequently ignored.


As someone who currently has living parents and grandparents, and children of my own, this issue hits home in every conceivable way. The imminent costs of aging grandparents, the initial stages of preparation for parents, as well as how these costs and psychological effects may trickle down, are intimidating and often overwhelming. Even for a financial advisor who discusses these topics frequently, it’s not a simple issue.


According to the most recent census, nearly 10,000 baby boomers turn 65 each day and the Administration for Community Living reports that almost 70% of people who live to age 65 will need some form of long-term care services. This doesn’t mean that everyone will experience a prolonged stay needing 24-hour care, but even assisted living and shorter-term stints in care facilities are not cheap. According to a 2021 study by Genworth, the national average for a year in an assisted living facility was $54,000 and $108,405 for skilled nursing. More importantly though, in a more expensive state like California, these costs jumped to $63,000 and $146,000 respectively. The numbers are staggering. It’s also important to know that a large amount of the costs related to these long-term care events are not covered by Medicare.


So, what are the options to address your long-term need? There are a few main approaches to planning financially for a prolonged health event. These include being self-insured, buying a long-term care policy, or relying on family and friends.


Being self-insured is pretty simple; you cover your own cost of care when the need arises. This assumes you have sufficient money saved for retirement and built a large safety net. In essence, you have insured yourself. You’re not alone if you don’t have those kinds of assets. Most Americans don’t. Even if you believe you might have enough to self-insure, it is still important that you have a financial professional verify with an in-depth analysis.


For those who can’t self-insure, the need must be provided for differently. This can be done through a long-term care policy or through family support, potentially a combination of both.


Long-term care insurance is complex and varies significantly by provider, but in general, it will provide the kind of coverage needed. If you are in the market for one of these plans you need to make sure you have solid information on the benefit amount, the limitations on types of care, the waiting period, the potential increase in premium and clear details around renewal and inflation protection. If all of that sounds too complicated, it’s a good indication you might benefit from enlisting a financial planner to help you analyze the benefits and drawbacks of multiple different policies before committing. If you are in your mid-50s, it is a perfect time to start considering a policy. You are young enough to still be in good health, but not so young to commit to paying premiums longer than necessary.


Many people also rely on family support, either from lack of planning or intentionally, but this is something that should never be assumed. Caring for loved ones puts a large financial and emotional burden on grown children at an already challenging time of life. If your long-term care plan relies primarily on family, it is imperative to have specific conversations with those who will share this burden and clarify what is expected of them.


So, what can you do to prepare? Start having honest conversations now. Talk to your financial advisor about your ability to self-insure or if you should consider a long-term care policy. Talk to your family about your expectations and financial means during a care event. Action now can help ease the fear and doubt around this very likely need later in life.

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