The financial impact of long-term care can be devastating to the sustainability of one’s retirement assets and the preservation of their estate, but it may not be as detrimental as one might think.
As we age, healthcare costs increase at a higher rate than inflation. According to the US Bureau of Labor Statistics Consumer Expenditure Survey 2015-2018, healthcare expenses increase from 8% of total annual spending at age 55 to 14% of total annual spending at age 75. Longtermcare.gov estimates that 69% of seniors will need some form of long-term care in their lifetime with an average long-term care event lasting just over 2 years for men and nearly 4 years for women. The discrepancy between men and women is attributed to women having a longer life expectancy than men while also typically being younger than their male counterpart. This means they have the capability of taking care of their husband, but then there may not be anyone to care for them when the need arises.
Long-Term Care Insurance
Long-term care (LTC) insurance is a possible solution to mitigate the risk of a long-term care event.
Factors to Consider
There are many factors that should play a role in deciding whether to purchase long-term care insurance. Current health, assets, spending and family history. There are also insurance factors to consider: optimal age to obtain coverage, amount of coverage needed, whether to have a higher monthly benefit or a longer benefit period, what elimination period to have, whether to add an inflation rider (simple or compound), premium affordability, and the risk of the premium increasing over time. The list goes on and on and can be an overwhelming decision to make.
The Commonly Missed Factor
The cost of long-term care relative to overall spending can be deceptive. Many times, these costs are perceived to be in addition to your normal living expenses. However, that is not always the case. While LTC costs are increasing, other basic living expenses are decreasing. Traveling, going out to eat, and entertainment expenses are commonly at their highest in early retirement, but decline with age. Consider a household with $72,000 of annual living expenses. Now imagine that same household with a $72,000 annual nursing home bill. They may no longer have a mortgage, property tax, homeowner’s insurance, car loan or any other car related expenses, travel expenses, etc. They may also have reduced grocery, entertainment, clothing, personal care, and utility expenses as a result reducing all basic living expenses to only $12,000 per year. While this is still a significant increase (17%), the cost may not be double like many may think, and the costs may not be as intimidating as they are often portrayed.
At Total Wealth Planning we help our clients every day answer these important and at times stressful questions. Who’s helping you?
Financial planning is complex and requires the guidance of a trusted and experienced advisor, such as a fee-only Certified Financial Planner™ (CFP®), who plans comprehensively, and with a complete understanding of your particular concerns and goals in life.