How pre-retirees can plan ahead for the long-term care reality

The U.S. population is aging. By 2034, all baby boomers will be older than 70 and older adults will outnumber children for the first time in U.S. history, according to Census data.

With age comes a greater risk for chronic diseases and conditions—yet most adults are not facing this reality head-on. People tend to worry about how a market downturn would affect their retirement savings. But considering that 70% of seniors will likely need some type of long-term care, not planning ahead for it could have a greater impact than any recession. 

Below, we’ll help you understand long-term care costs and types of coverage, plus strategies to make sure you’re prepared.

What is long-term care?

The goal of long-term care is to help people live as independently and safely as possible. Healthcare.gov defines it as “Services that include medical and non-medical care provided to people who are unable to perform basic activities of daily living such as dressing or bathing.” The six standard activities of daily living (ADLs) are generally recognized as bathing, dressing, toileting, transferring (getting in and out of bed or chair), eating, and continence. 

Long-term care support and services can take a variety of forms. Care may be provided at home, in the community, or in residential facilities like assisted living or nursing homes. 

Home-based care often involves informal caregivers, such as friends or family members who help with things like meals, dressing, housekeeping, taking medications, and ensuring general safety. But it could also include paid caregivers like home health aides, nurses, physical therapists, and others. Community and residential care is often the reverse, with the bulk of services done by paid professionals, and supplemented by visits from friends and loved ones. 

Keep in mind, long-term care is not short-term nursing to recover from an accident or operation, nor is it solely about end-of-life care. Instead, it spans for months or years, when someone is expected to need ongoing support for their daily needs.

While often associated with the very elderly, the need for long-term services could arise at any age. It could happen suddenly, such as after a severe heart attack or stroke. More often, though, the need develops gradually as a person becomes frail, an ongoing health condition worsens, or due to mental decline.

Why most Americans are unprepared for long-term care assistance

If you or your loved one unexpectedly needed long-term care services tomorrow, would you be prepared? Most people aren’t. 

There are a few reasons for this—one of them being a simple lack of knowledge. Medicare and most health insurance plans don’t pay for long-term care. But almost half of people surveyed by AARP in 2022 believe it does. Specifically, 46% incorrectly assumed Medicare covers a nursing home or in-home care from a home health aide.

Avoidance is another major factor behind our collective unpreparedness. The same AARP study found nearly seven in 10 believe they will need assistance with daily activities as they get older. Yet less than three in 10 have given a lot of thought to how they will respond to that need.

Diving deeper, “not giving a lot of thought” meant the majority have also not planned for their funeral expenses or designated a legal Power of Attorney. Very few have researched community-based services they could use as they age. And even fewer (only 12%) have purchased long-term care insurance. 

Most people aren’t talking about long-term care—as humans, we tend to avoid tough conversations. But ignoring long-term care won’t erase the likelihood of needing it.

How much do long-term care services cost? 

How much will you need to spend on long term care services, like skilled nursing facilities or in-home assistance? According to some estimates, long-term care services can cost six figures per year. However, the true cost depends on a number of factors, like: 

• Whether or not you have access to informal care – Often a spouse, child, or other family member. 
• Gender – Women typically need care longer than men, because they’re more likely to outlive their spouses.
• The standard of care you desire – For example, a private room in an upscale retirement community or full-time in-home care will cost more than a shared room in a basic nursing home.
• Lifestyle changes that may offset long-term care expenses – Once the need for long-term care arises, it may replace other expenses, such as travel and entertainment (if those costs were a big part of your budget, you might be left with less extra to cover).
• Geographic location – Long-term care costs vary widely based on location, with Alaska and Hawaii being the most expensive, followed by the West Coast and the Northeast.

The average monthly cost of nursing home care in California in 2024 is estimated at $9,794 for a semiprivate room and $12,167 for a private room. A home health aide in California cost approximately $37 per hour in 2023, according to Genworth. 

Understanding long-term care coverage 

There are two main types of long-term care coverage: traditional long-term care insurance and life insurance policies with a long-term care rider. In both cases, there’ll be limits on the duration and dollar amount of coverage. There are a range of options and benefits to select from when buying a long-term care insurance policy, so be sure to get the guidance of an experienced financial professional. 

What does long-term care insurance cover?

Many long-term care insurance plans cover care in different settings like nursing homes, assisted living facilities, or your home. To begin receiving benefits, a healthcare provider usually has to confirm that you require help with two out of six ADLs or need supervision due to cognitive issues. Some plans reimburse the exact costs of care expenses, while others offer a set monthly benefit.

How much does LTC insurance cost? 

Long-term care premiums vary greatly so it pays to do thorough research to compare prices/benefits. Premiums will change based on factors like age, gender, health status, where you live, benefit amount, and benefit period. 

The American Association for Long-Term Care Insurance provided the following pricing info from the top three companies selling LTC insurance. For a couple both age 55 (with a $165,000 initial pool growing at 3% compounded annually): 

• Company 1 – $5,018 per year
• Company 2 – $9,990 per year
• Company 3 – $14,695 per year

The average annual premium for a single male at age 55 with an initial policy benefit of $165,000 and growing at 3% yearly was $2,100. The same policy for a single female has an average annual premium of $3,600.

The above prices reflect “Select” health which is more costly than “Preferred” health.

How pre-retirees can plan for long-term care costs 

You may worry that a long-term care or cognitive decline event will create a burden for family members. Or that you’d struggle to afford the services required. While these risks are not uncommon, there are ways to prepare. Here are some considerations for pre-retirees. 

Take good care of yourself 

Many of the factors that influence aging are under your control. There are no guarantees, of course, but things like good nutrition, regular physical activity, an active social life, not smoking, limiting your alcohol consumption, and getting regular health checks can help you stay healthy for longer. They may even shorten the duration of or prevent the need for long-term care. Be sure to check with your doctor for advice for your personal situation. 

Decide whether to buy insurance or self-fund 

Since Medicare doesn’t cover long-term care, you’ll need to find other ways to pay for those services. For pre-retirees, this usually means choosing between self-funding or purchasing an insurance policy. In some cases, employers will provide long-term care insurance as part of their benefits package. To make sure you’re prepared, work with a trusted financial advisor to develop a tailored plan (especially if you decide to self-fund) .

If you’re in your 50’s, now is the time to purchase LTC insurance  

If you decide to buy insurance for long-term care, sooner is better than later. Your premium will be lower if you buy in your 50s, for example, than if you buy later. Rates increase annually by around 2-4% in your 50s, or 6 to 8% per-year in your 60s, according to The American Association for Long-Term Care Insurance.

Buying younger also means you’re less likely to be denied coverage for health reasons. And if you end up needing care earlier on, you’ll be glad you have the policy. 

Have the conversations early on

The best time to talk about long-term care with your family is before you need it. Broaching the subject may feel daunting, scary, or even macabre. But planning ahead has many upsides: 

• It results in better quality of care (and quality of life) for you or your loved one, since wishes are known.  
• The transition is often easier, since many important decisions will already have been made or at least discussed.
• You will be better prepared financially.

If you’re having the conversation with a loved one, like your aging parents, it can help to ask for permission to have the conversation. Choose a comfortable, private, and distraction-free environment to have the chat, and actively listen to their wants and needs. 

Seek professional guidance when needed

It can be overwhelming when your otherwise sharp and capable parent begins to show signs of cognitive or physical decline. Whether planning for yourself or for your loved one, getting the advice of a professional can offer guidance when it comes to long-term care.

For example, a fiduciary financial advisor can help families understand the financial implications of long-term care, including how to pay for care or coverage, and how to protect their assets. They can also serve as an objective mediator, identify community resources, and advise on estate planning and/or medical documents needed. If you have questions about long-term care planning, our Certified Financial Planners™ are happy to help. Contact us for a free consultation. 

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