Understanding Long-Term Care: A Guide to Financial Preparedness

As our population ages, the looming costs of long-term care (LTC) are becoming a national concern. At Extreme Investor Network, we believe it’s crucial for you to understand these potential expenses and plan accordingly. Let’s dive into what you need to know about long-term care, its costs, and how to prepare financially.

The High Cost of Long-Term Care

Long-term care can indeed be pricey, with costs often extending beyond $100,000. Carolyn McClanahan, a physician and certified financial planner, notes that many Americans are unprepared for these expenses, emphasizing, "It’s a huge problem." A recent report by the U.S. Department of Health and Human Services found that 57% of Americans turning 65 will likely develop a severe disability requiring long-term care.

The average future cost for someone turning 65 today hovers around $122,400, and those requiring extended care could see costs spiraling into the hundreds of thousands. The authors of the report, Richard Johnson and Judith Dey, highlight that this is simply out of reach for numerous American households.

Growing Demand and Insufficient Savings

With increasing longevity, the number of people needing long-term care is set to rise significantly. Many workers, however, lack the savings to cover these potential costs. Bridget Bearden from the Employee Benefit Research Institute points out the troubling reality: "Workers don’t have that amount of savings in retirement, and the majority don’t have long-term care insurance."

Where will the funds come from?

Uneven Costs Across the Nation

The burden of long-term care varies widely across states and service types. Currently, a home health aide averages about $6,300 a month, while a private room in a nursing home costs about $9,700. Notably, while many face relatively low care expenses, about 15% can expect to spend over $100,000 out-of-pocket.

Surprisingly, a significant number of workers are unaware of the real costs associated with long-term care. A poll by the Employee Benefit Research Institute revealed that while 73% of workers anticipate needing to provide care for someone, only 29% have estimated what that care will cost.

Insurance Limitations: What You Need to Know

Sadly, the reality is that most health insurance plans, including Medicare, do not cover long-term care. While Medicare might partially support skilled rehabilitation for up to 100 days, it generally excludes custodial care––the assistance needed for daily activities like bathing and eating. Medicaid, on the other hand, is the largest funder of long-term care but often requires individuals to deplete their savings before qualifying.

As McClanahan succinctly puts it: "You basically have to be destitute."

The Need for Long-Term Care Insurance

Currently, only a fraction of the population is covered by long-term care insurance—about 7.5 million Americans, according to the Congressional Research Service. This is a concerning number considering that more than 4 million baby boomers are expected to retire annually between 2024 and 2027.

Some states like Washington have begun to establish public long-term care insurance programs, with others considering similar initiatives. These developments may significantly affect individuals’ choices and financial planning.

Choosing the Right Policy

McClanahan advises selecting a hybrid insurance policy that combines life insurance with long-term care benefits, as stand-alone policies can be quite costly. Look for indemnity policies, which pay out as soon as the insured qualifies for care, rather than reimbursement options that might require extensive documentation.

Proactive Planning for Long-Term Care

Planning for long-term care isn’t just prudent—it’s essential. McClanahan emphasizes the importance of discussing long-term care logistics with loved ones and making thoughtful decisions before a crisis arises.

Key Questions to Consider:

• Who in the family can help provide care, and what financial support can they offer?
• What logistical support will be needed for managing bills and insurance claims?
• Are your advance healthcare directives in place?
• Do you want to age in place, and is your home suitable for this?
• How will rural living impact your access to care?

Being proactive about these questions can lead to less stressful, more cost-effective decisions down the line.

Conclusion

At Extreme Investor Network, we encourage you to consider the implications of long-term care. By planning ahead and discussing financial strategies with family, you can better navigate the complexities of aging and care costs while securing your financial future. Being informed and proactive is a powerful way to manage what lies ahead—giving you peace of mind today and tomorrow.