Thinking about Long-Term Care

According to the U.S. Administration for Community Living, 70 percent of people who reach the age of 65 will need some sort of long-term care in their remaining years, with an average of 3 years of care needed.[1] While not everyone will need long-term care, it is a good idea to start thinking about planning when you reach your late 40s or early 50s.

Long-term care costs can be very high, whether you reside in a nursing home or receive in-home care. According to the Genworth Cost of Care Survey, in DC, one can expect to pay around $151,000 a year for in-home care at 112 hours a week (7 16-hour days) and between $168,000 to $173,00 for nursing home care depending on whether you have a private or semi-private room.[2]

Unfortunately, Medicare does not cover long-term care. Medicaid is a possibility for some, however there are some asset and income limitations. (Keep an eye out for a future blog post on Medicaid funding of long-term care.)

One way to plan for any late-in-life care needs is to obtain long-term care insurance. If you apply for this insurance in your late 40s or early 50s, you can likely get a relatively lower premium. However, premiums can go up throughout your life and sometimes quite significantly. According to the American Association for Long-Term Care Insurance, a 55-year-old couple getting $800,000 total worth of long-term care protection for their needs when they turn 85 would pay $5,000 annually in premiums.[3] There are ways to reduce your premiums though, including applying for insurance at an earlier age and reducing or delaying your benefits.

The number of insurance companies offering long-term care insurance policies has declined in recent years. Further, a small percentage of Americans have these policies in place, in large part due to the high premiums and unpredictability of premium hikes. In some instances, people have had to drop the coverage after paying premiums for many years due to its unaffordability as premiums increase.

Another insurance option for covering long-term care needs is to get a life insurance policy that has long-term care benefits. With this policy, you can use your death benefits to pay for long-term care, should you need it. If you do not need long-term care, the proceeds of the life insurance go to your beneficiaries. While this provides a way to make sure your premiums result in a benefit to you or your family, the premiums may be a bit higher than traditional long-term care insurance.

If paying premiums for this type of insurance is not in your budget, you can think of other ways to plan for the potential need for long-term care, like setting up a fund that is specifically earmarked for this or contributing more to your 401(k) or IRA. In addition, if the time comes for long-term care, you may be able to downsize your home and use any home sale proceeds to cover care costs for you or your spouse.

For many, long-term care seems like a far-off consideration. And, hopefully, you will not need significant support in your later years. But, just like any other good planning, it is good to know your options and take some initial steps to get a plan in place. Your insurance agent and financial planner can walk you through your options to see what steps are the right fit for you and your family.

[1] How Much Care Will You Need? Available at: https://acl.gov/ltc/basic-needs/how-much-care-will-you-need.

[2] Genworth Cost of Care Survey, available at: https://www.genworth.com/aging-and-you/finances/cost-of-care.

[3] Costs long-term care insurance 2024 reported by AALTCI, available at https://www.aaltci.org/news/long-term-care-insurance-association-news/costs-long-term-care-insurance-2024-reported.