One reason many people worry about not having enough money in retirement is that they (quite reasonably) fear needing long-term care and not being able to afford it -- or having to wipe out their savings in order to pay for it.
That's why many people opt for long-term care insurance, but it ain't cheap -- and getting it might not be the best move for you, either. Here are some important things to know about long-term care that can help you make smart decisions about it.
1. 69% will need long-term care insurance
A key thing to know about long-term care is that there's a good chance you'll need it. Fully 69% of those turning 65 this year will need some kind of long-term care during their life, according to longtermcare.gov:
2. 1 to 3 years is how long you'll likely need it
Another important thing to understand is that when we need long-term care, the period of time we need it for is typically about one to three years -- which might be a much shorter period than you assumed.
That information can help you plan and save for retirement, and for any possible long-term care needs, but remember that the numbers above are averages. Some people will need long-term care for much longer periods, and some for significantly shorter periods. (A 2017 AARP report estimated that about 14% of people will need long-term care for more than five years.) Insurance policies are typically available, covering you for between one and about six years of care.
3. 15.2% will spend $250,000 or more
This bit of data is likely to make your eyes pop: 15.2% of people who turn (or turned) 65 between 2015 and 2019 will spend more than $250,000 on long-term care during their lives, according to a 2016 report from the National Association of Insurance Commissioners (NAIC).
Making matters worse is the fact that most of us are likely to spend another big bundle on healthcare in retirement: A 65-year-old couple retiring today can expect to spend an average of $280,000 out of pocket on healthcare expenses (not including long-term care, over-the-counter medicines, or most dental care) over the course of their retirement, per Fidelity Investments.
Clearly, whether you opt for long-term care insurance or not, you should have some kind of plan for how you'll pay for healthcare and long-term care in retirement, and you'll need to execute that plan successfully. Ignoring your future healthcare needs can be disastrous to your financial health.
Here are a few more illuminating numbers:
- The median annual cost for five days a week of adult day care was recently $18,200, per a 2017 Genworth report.
- The median annual cost of an assisted-living facility was recently $45,000.
- The median annual cost of a semiprivate room at a nursing home was recently $85,775.
- The estimated lifetime cost of care for someone with dementia is $341,840, per the Alzheimer's Association.
4. The number of insurers offering stand-alone long-term care policies has fallen from 125 to 15
According to a report by the NAIC, the number of insurers offering stand-alone long-term care policies (as opposed to ones bundled with some other product(s) such as annuities) dropped from 125 to 15 between 2000 and 2014. That will only surprise those who haven't been keeping up with the industry, which has been struggling.
What's the problem? Well, as noted in the previous statistic, long-term care is simply very costly, and healthcare costs in general are quite steep -- they have been increasing at rapid rates, too. Some insurers have had to hike the premiums they charge their policy holders, while others have just stopped offering long-term care policies. Genworth Financial, for example, recently announced a 58% rate hike, while Mass Mutual requested a 77% rate hike.
This information shouldn't necessarily stop you from seeking coverage, but do know that the industry has been in some turmoil, and approach it with your eyes open.
5. A typical long-term care annual premium costs $3,490
The last stat to know is that long-term care insurance is expensive. It's likely more expensive than you thought, but for many people, it is still affordable, and there are signs of relief, too.
The Long-Term Care Insurance Price Index (LTCIP) for 2018 finds that a 60-year-old couple who buy a new long-term care insurance policy will pay about $3,490 in their first year for a policy offering a potential benefit of more than $666,000 for coverage they begin needing at age 85. That's actually down from the 2017 rate of $3,790.
Costs can vary widely, though, and so will the precise benefits offered in any given policy. Some, for example, will cover just nursing-home care, while others cover both nursing-home care and home healthcare.
Good long-term care insurance strategies
Given all of the information above, what should you do? Well, definitely spend some time thinking about whether you would be well served by long-term care insurance, and decide whether and when you want to buy some. Then, shop around for the best rates and the best coverage.
Know that while long-term care insurance is a smart buy for many, it's not best for all. If you're quite financially challenged, you may not be able to afford the insurance as you're socking away any available dollars for retirement. And if you're very financially comfortable, you may be able to simply pay out of your pocket for any long-term care needs that arise. Thus, it's those folks in the middle, who would be squeezed by significant long-term care costs and who can afford the insurance, who should consider buying it.
One great way to keep the costs down is to buy your policy early, while you're still relatively young, as it's much more affordable then. You might also be able to add a long-term care rider to your life insurance policy.
Another smart move to consider is "self-insuring." This is when you regularly sock away money for your possible long-term care needs. If you end up needing the money, you'll have it. If you don't, it can be spent in other ways or left to your loved ones. One way to do this is through a Health Savings Account.
Finally, be sure to check with your employer, as many companies offer long-term care policies to their employees, and those policies can often be kept even after you no longer work for them.
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