Planning for long-term care

Almost 70% of Americans over age 65 will likely need part-time or full-time support for simple everyday living, according to the most recent, 2020 study by the U.S. Department of Health and Human Services (HHS).Opens in a New Window‍ ‍ ^{See note 1}

Long-term care is usually needed when someone can't perform an activity of daily living, or ADL. These activities include getting dressed, transferring from a bed to a chair, bathing or eating.

When someone can't do these activities on their own, they may require the help of a nurse, a home health aide or a nursing facility. Often, family members step in to provide care to their loved ones.

Typically, the cost associated with this kind of care isn't something medical insurance or Medicare will pay for.

The financial impact of long-term care

Long-term care can be expensive and impact a family's financial well-being unless planned for. Nursing home care can be the most expensive. But home care and other long-term care services continue to increase in cost each year.

In 2023, the average monthly cost for a full-time home health aide was $6,292. An assisted living facility costs about $5,350 a month, and a private room in a nursing home facility was around $9,733 a month, according to a recent Genworth study.Opens in a New Window‍ ‍ ^{See note 1}

It's also important to keep in mind how many years these costs will continue for. The same HHS study showed the length of care on average is 3.7 years for women and 2.2 years for men. But 20% of 65-year-olds will require care for at least 5 years.

Caregivers need to plan ahead, too.

Most caregivers are family members, and it's often the children of those in need of care. Almost 48 million Americans are caring for another adult, according to the National Alliance for Caregiving and AARP's Caregiving in the U.S. 2020 report.Opens in a New Window‍ ‍ ^{See note 1}

Many caregivers will take a leave from employment or shoulder some of the costs for care from their own assets.

The cascading effects are significant. Check out these numbers from a recent Merrill Lynch study:Opens in a New Window‍ ‍ ^{See note 1}

• 24% of caregivers said they had trouble paying their own bills.
• 21% paid from their own savings.
• 18% said they couldn't save for their own future.
• 15% had to take on debt to help pay for care.

But the biggest challenge that caregivers face is the mental and physical time and effort involved with caring for their loved ones.

How to take action

Paying for long-term care out of your own pockets can be troubling. With the current cost of care not showing any sign of getting more affordable, it's critical that you plan for long-term care as a related health care cost in your retirement expenses.

There are many strategies to explore, each with various factors to consider. Long-term care solutions have been a financial tool that has been around for decades. But in recent years, the availability of long-term care solutions has shrunk as insurance companies have quit offering new policies.

Life insurance companies have looked at different ways to help consumers plan for their future needs through various forms of permanent life insurance, annuities and policy riders to help policyholders afford long-term care costs. These policies can be a valuable resource. They can also be complex.

The significance of long-term care planning and the impact it has on families for generations should be reviewed. Work with a professional who can analyze the various funding sources like retirement savings. They can help you identify if and how an insurance strategy can support your overall financial situation.

Also, have a conversation with loved ones. Many families will lean on each other for caregiving and financial support. Many caregivers step into the role because of family obligation, but they may not be able to without heavy tradeoffs.

Have the discussion. Bring your children into the fold to discuss your wishes and plans. Or as a potential caregiver in the future, start planning with your parents. It can be challenging, but it may reduce the emotional impact when long-term care is needed.