Managing your finances shouldn’t be like pulling teeth. But it might as well be for the proportion of Americans who say they would rather go to the dentist than talk about their long-term care planning and aging needs.
Long-term planning might be unpleasant, but it is necessary, just like going to the dentist.Such was the response from 45% of adults surveyed by the AARP in a 2018 study designed to raise awareness among Gen-Xers of the need to take retirement planning seriously.
“While the data stating people would rather sit in a dentist chair than talk about long-term care might seem amusing, the severity of the issue is very real,” said Tom McInerney, president and CEO of Genworth.
What can be more real and anxiety-invoking than the peripheral sight of air compressor drills and the gritty scrape of a dental pick scratching away at your teeth? Well, for more than 60% of adults surveyed by Genworth, discussing their long-term care needs brings forth greater negative emotions.
Emotionally, males are more likely to feel peaceful or calm (40%) when discussing this topic as compared to females, who are more likely to feel anxiety or fear (31%) or become confused or overwhelmed (19%), according to Genworth’s findings.
Regardless of feelings, having a plan in place on how to fund future long-term care needs can help dispel financial anxieties for you or your loved one and provide some peace of mind.
Face the Reality
Aging is an inevitable part of life, whether we want to acknowledge that or not. The reality is that regardless of how young or old we consider ourselves, there’s a good chance the day will come when we’ll require more intensive health care later in life.
In its 2014 Medicare & You national handbook, the Centers for Medicare and Medicaid Services stated 70% of adults after age 65 will need some form of long-term care. Taking this sizable probability into account motivates the majority of adults (57%) to proactively take action for their own long-term care needs.
And it’s best to start considering what those needs may be sooner rather than later, for both your financial as well as your mental well-being.
“Having your head in the sand is not an option,” says John Shearman, CEO of IV Lions, a financial advisory firm based in the San Francisco Bay area. “It is critical to be informed, or else you are going to open yourself up to a great deal of anxiety during a period of your life when you’re least equipped to deal with it.”
Start the Conversation
Although talking about future care is the first step in creating a plan, Genworth’s study found that less than 30% of adults have had a conversation about planning for their long-term care or aging needs. To that end, if an unexpected long-term care event were to happen suddenly to a spouse or loved one, Genworth estimates approximately 20% of adults wouldn’t be able to provide assistance.
And let’s face it, the cost of health care isn’t cheap and, if anything, it’s more likely to increase rather than go down.
Over the course of one year, the cost of nursing home care increased 2.62% in 2014 to an average price of $212 per day, according to the most recent Genworth 2014 Cost of Care Survey. For assisted living, the national median monthly rate is $3,500, a 1.45% increase from 2013, and a five-year annual growth rate of 4.29% since 2009.
Even at the low end, the costs are rising. For home health care services, which are far less costly and less intensive than assisted living or nursing care, the median hourly rate skipped up 1.59% in 2014 to $20 per hour.
Depending on your net worth, you may be able to pay these costs out of pocket, whether those funds come from assets like your pension, retirement accounts, or even the sale of your home, if you happen to be one of those retirees looking to downsize during retirement.
But the reality is that these costs can weigh heavily on your savings, and their unpredictable nature can make them more severe if you’re unprepared.
“There’s a danger that long-term care can suck all your assets – a fear of going to zero, where you’ve literally run out of money,” Shearman says. “That’s why the most important step to take early on is to actually look at long-term care. Most people probably don’t look at this early enough.”
Pros and Cons of Long-Term Care Coverage
Becoming informed and initiating the proper conversations early is the first line of defense when preparing for future long-term care needs, but that’s just the start. Just as there is more than one way to plan for retirement, there are several ways to plan ahead when considering long-term care.
Contrary to popular belief, Medicare does not cover all long-term care expenses. Medicare will cover up to 100 days of care in a skilled nursing facility, but only after a hospital stay of at least three days, and only if you require medical attention on a daily basis.
Even if you do qualify, Medicare pays 100% of the cost only for the first 20 days. After that, you’re responsible for a copayment per day.
If you don’t plan to cover long-term care expenses with your out of pocket savings, one solution is to look into long-term care insurance, which can be used to fund a variety of services, including adult day care, skilled nursing or assisted living facility, though it largely depends on the type of coverage plan you choose.
With long-term care insurance, you will be required to pay a monthly premium, the amount of which is determined by your age, health, and the type of coverage policy. Though you can apply for coverage any time, it’s best to purchase when you’re younger since premiums rise as you age.
The rub, however, is weighing the cost of monthly premiums against the span of the policy’s payment, or in other words, whether you should pay less for longer, says Shearman.
“You have to make a base case when looking at long-term care insurance – things like when you’ll need it and for how long,” Shearman says. “It is reasonable to be looking at this in your 50s, but the important thing is to look earlier as opposed to later, and decide whether you want to act early and if you think you’ll need an insurance policy.”
Options Beyond Long-Term Care Coverage
Working with a retirement financial advisor may be the best way to determine how you should plan for long-term care. Long-term care insurance is great for some and expensive and inadequate for others. A good advisor can help you determine what is best for you. Just be aware of how the advisor is compensated to make sure that he or she is not just trying to sell you a policy in order to get a commission.
Beyond long-term care insurance, there are a variety of financial options that retirees can explore. Explore creative ways to fund long-term care. Life insurance, deferred lifetime annuities, reverse mortgages, and cohousing are options that could be efficient and effective ways of funding long-term care if you need it.
