By ASSOCIATED PRESS NOV. 16, 2017
Many Americans
have a blind spot when it comes to retirement planning: long-term care costs.
Even though the majority of Americans will at some point need long-term care,
few are planning for it. Many underestimate the costs and mistakenly believe
health insurance can help cover it.
“This is not
like being struck by lightning. It is something we will all face in our lives,”
said Bruce Chernof, president and chief executive of the SCAN Foundation, which
researches care for older adults. “If we don’t need it ourselves, it is likely
that our spouses, our significant other or our parents will. One way or
another, it will touch the lives of every single American.”
The U.S.
government estimates that 70% of people age 65 today will require some form of
long-term care during their lives. Most of the time, that type of assistance is
non-medical, including help with daily tasks such as bathing. The need can
arise unexpectedly after a major illness or even an injury from a fall.
The costs of
such care can easily outstrip retirement savings: A 65-year-old today can
expect to incur $138,000 in long-term care costs over their lifetime, according
to a 2017 Bipartisan Policy Center report. Two-thirds of Americans 40 and older
say they’ve done little or no planning for their long-term care needs,
according to a poll conducted this year by the Associated Press-NORC Center for
Public Affairs Research, with funding from the SCAN Foundation.
Here is some
guidance on how you can get a jump-start on planning.
Get a realistic picture of the costs
This is
something people can do easily and early. AARP has a long-term care calculator
that lets people find the average costs for different types of services by
state and metropolitan region, based on research by Genworth Financial.
The most expensive
option — a nursing home — now costs an average $97,000 a year, according to
Genworth’s 2017 survey of long-term care costs. Assisted living facilities —
for those who can’t live independently but don’t require skilled nursing care —
cost about $45,000. For those seeking to remain at home, hiring a home health
aide or homemaker services costs more than $20 an hour. Other options include
adult day health centers, which charge an average of $70 a day.
Younger adults
should remember that costs are rising. Genworth has a cost calculator that
gives estimates on what prices will be in 30 years.
Learn the truth about financing
Many mistakenly
believe Medicare or private health insurance will help pay for long-term care.
According to the AP-NORC poll, 57% of Americans say they plan to rely on
Medicare should they ever need ongoing living assistance. But Medicare does not
cover extended nursing home stays or non-skilled living assistance, which make
up the majority of ongoing care needs for the elderly.
More than half
of Americans end up paying for long-term care out of pocket, according to the
Bipartisan Policy Center report. That figure rises to nearly 70% for those
receiving long-term care at home. Many Americans with severe long-term care
needs quickly burn through their savings and end up turning to Medicaid, which
is projected to account for 40% of national spending on long-term care services
by 2030.
So it’s a good
idea to take the time to research Medicaid rules, particularly what sorts of
assets you might have to spend down to qualify. Research how other long-term
care financing plans can affect your Medicaid eligibility. For instance,
annuity payments may count as income, but reverse mortgage payments do not. The
government website LongTermCare.gov provides
a good overview of Medicaid long-term care coverage and eligibility.
Keep in mind
that Medicaid regulations vary widely by state — and could change over time.
What to know about long-term care insurance
Only 11% of
older Americans have private long-term care insurance, according to the
Bipartisan Policy Council, and with good reason.
Simply put,
premiums are too expensive for most people. Some estimates put average rates at
up to $2,400 annually. Rates have increased significantly since long-term care
insurance plans first came on the market about 30 years ago, largely because
insurance companies saw fewer voluntary lapses than expected and made other
mistaken price assumptions. For the same reasons, the number of insurance
companies offering the policies has fallen dramatically.
The good news is
that if you start early enough, there is plenty of time to research and make an
informed decision about long-term care insurance. Consider your age and income
level when considering whether to buy a plan. The younger you are, the lower
your premiums will be. But you need to evaluate whether you can keep up with
payments into retirement, when your income is likely to be lower.
Consider hiring
a financial expert to help you pick the right policy.
Growing in
popularity are “hybrid” insurance products that combine death benefits or
annuities with long-term care benefits. People like them because if the
long-term care benefits are never used, heirs still receive the death or
annuity payouts. But some financial advisors are wary of the plans because they
are difficult to analyze.
Talk to family and consider where you live
Chances are high
that relatives will be involved with long-term care, at least to some degree.
Experts recommend having family discussions about preferences before a crisis
occurs. For instance, you might be determined to care for a parent or spouse at
home as long as possible before putting the person in a nursing home. But would
that person feel comfortable with a home health aide or an adult day care
center while you are at work?
Where you live
matters when planning for long-term care, especially if relatives live far
away. Check out the condition of your home and whether it can be modified to
accommodate disabilities.
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