Long Term Health Care: 4 out of 5 Retirees Horribly Unaware of Actual Costs

They say that what you don’t know won’t kill you.

However, if you are misinformed about the costs of long term health care in retirement, you might not be able to afford the kind of care you would like to have when fighting to stay alive.

long term health costsMost retirees have their heads in the clouds when it comes to the true costs of long term care.

When saving for retirement, it’s vital to focus on the cost of long term health care as you age. Unfortunately, those costs are vastly underestimated and are increasing each year, according to Genworth’s annual Cost of Care Study.

The 2016 study marks the 13th year for the report, finding that the national median cost of care rose across all but one care type; costs rose for home health care, assisted living and nursing home care. The only area where costs did not rise year-over-year was adult day care, which fell slightly.

Year over year, the cost of receiving care continues to rise, especially for in-home services, where the vast majority of Americans receive long-term care for a longer period of time, compared to other facilities, the study states.

Do You Know How Very Expensive Long Term Health Care is in Retirement?

While long term health care costs are rising, the problem is made worse by the fact that most of us don’t have a clue about how expensive these expenditures really are.

Let’s see what you know… How much do you think the cost of home care services to be?

What do you estimate the national median monthly rate is for an in home health aide?

  • Under $417?
  • Between $417 and $1,666?
  • Between $1,666 and $3,333?
  • Or, more than $3,333?

The real answer is more than $3,333. In fact, the national median rate is $3,861 per month for an in-home aide, which has increased 1.25% since last year and the cost per month for homemaker care is $3,813, which is up 2.56% from last year.

If you guessed wrong.  You are far from being alone.  Four out of five adults underestimate the cost of home health care, according to the Genworth survey. And nearly one-third of Americans estimated the monthly cost of home care services to be less than $417.

“The data from our complementary study dramatically demonstrated the huge disparity between what consumers think costs are and what they actually are, which is why it’s so important for families to educate themselves about the costs and plan ahead for how they will pay for those costs before it’s too late,” said Tom McInerney, president and CEO of Genworth, an insurance company based in Richmond, Va., that provides innovative solutions to help Americans secure their financial futures through products such as, long term care insurance, life insurance, annuity retirement solutions and more.

Costs Continue to Rise

While we don’t seem aware of what healthcare costs are now, the bad news is that these expenses are getting higher every year.

  • The monthly cost of a private room in a nursing home is $7,698, which is up 1.24% from last year and the cost of a semi-private room in a nursing home is $6,844, which is up 2.27%.
  • The cost of assisted living communities though had the smallest increase of only .8%, which brought the monthly median to $3,628, according to the study.
  • The only category covered by the study that saw a decrease was in adult day health care. The median monthly cost is $1,473, which is a 1.25% decrease, when compared to the numbers from 2015.

“Although the high cost of long-term care in America is considered the ‘new normal,’ it does not change the reality of what is certainly one of the biggest societal issues of our time – that at least 70 percent of Americans over age 65 will need some form of long term care services and support during their lives,” said McInerney.

On the bright side, the percentage of workers who are confident about having enough money for retirement has increased to 22%, compared to 13% in 2013, according to the Employee Benefit Research Institute 2015 Retirement Confidence Survey. The survey suggests that this may be because more people have retirement plans compared to past years.

What Do You Do if You Can’t Afford Long Term Health Care?

All is not completely lost if you can not afford long term health care in retirement.

After you have used up existing assets, you can opt to receive Medicaid.  Unlike Medicare, Medicaid will cover the costs of long term care.

Other households rely on family members to provide the needed care, but this decision should not be taken lightly.  Caregiving can take a tremendous toll on the health and wealth of the caregiver.

How to Pay for Long Term Care

Saving enough for retirement expenses seems daunting for most of us.  But when you add in the costs of long term health care, the savings goals can seem insurmountable.

Common strategies for funding care include:
  • Purchase of a long term care policy.  (You can explore the pros and cons here…)
  • Purchase of a deferred lifetime income annuity to cover the cost of long term health care
  • Use of home equity to fund the costs of care
  • Reliance on family members to provide the care

When planning, you might want to start by setting a goal: Do you want to be able to fund the kind of care you desire?  Do you want to protect your assets so that they don’t get used up funding long term health care?  Are you okay with Medicaid or with whatever help family can provide?

Not sure?  Explore creative ways to fund long term care.  Or, better yet, the NewRetirement retirement calculator actually let’s you model all of these scenarios so you can see the impact on your own retirement finances.  This powerful tool will tell you if you can afford long term care and enable you to compare different ways of funding these costs.  This calculator was recently named a best retirement calculator by the American Association of Individual Investor’s (AAII).

How will you fund long term care?



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