Part of protecting your financial future is considering what different paths your life could take and preparing for those possibilities. Or perhaps not preparing.
But whether you prepare or not, making a reasonable decision based on your own facts and circumstances in the light of knowledge is about the best you can do. That said, there are some basic things you should understand about long-term care.
Long-term care provides assistance for those who can’t take care of themselves. It can be necessary because you physically can't do what you need to do to live on your own or perhaps because of cognitive impairment.
We generally associate long-term care with the elderly, and for a reason. The elderly are the largest consumers of long-term care services. But there are many people who need long-term care before they reach retirement age.
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Many Reasons for Long-Term Care
Illness, injury, disability, or simply old age can cause you to need long-term care (LTC). Injuries, chronic illnesses, and disabilities can occur at any age.
Generally, your ability to perform key activities of daily living (ADLs) are used to determine whether or not you need LTC. These ADLs include bathing, dressing, eating, transferring, and using the toilet. Typically, you would require long-term care if you couldn't perform two or more of the ADLs without assistance.
Long-term care can be due to medical necessity or not. You may require skilled care, or you may just require help with doing the things you need to do to survive.
The Cost of Long-Term Care
Long-term care is expensive. According to the Department of Health and Human Services, the average cost of a private room in a nursing home was $253 per day in 2016 — undoubtedly even more today. That’s over $92,000 per year. But you could save with a semi-private room at an average of $225 per day, or only $82,000 per year. And those are just the averages. Expect higher numbers in big metropolitan areas.
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Not everyone who requires long-term care needs to go into a nursing home. Some people receive care at home, some in assisted-living facilities. Either would cost considerably less. But the problem is there’s no way to forecast what you may need. But if you prepare for the worst, you’ll be okay if the worst doesn’t happen.
Sometimes statistics are important. They inform you about the field, the likelihood of an event, and its potential consequences. Sometimes we need this understanding to come to a meaningful conclusion.
Let’s frame this back in terms of the costs. After all, that’s why this matters. The total cost of a long-term care need would be the length of time needed multiplied by the periodic cost. Or simply the number of years multiplied by the cost per year gives you the total cost.
I’ll use numbers from the Department of Health and Human Services. That's a good solid source.
The majority of people over age 65 will need some form of long-term care. Roughly 70 percent. Women, as usual, get the bum deal. Women both are more likely to require long-term care and will, on average, need it for longer. For those who need care, women will, on average, require care for 3.7 years, while men need it for an average of 2.2 years.
It would seem like you could just multiply it out and figure out what you need to cover it and bam — you’re all set. But not so fast. It doesn’t work like that.
No one is actually the average. Some people — about 30 percent — will never need long-term care. Of those who do, some will need it for less time, others for longer. About 20 percent will need it for over five years. And some will need it for 15 years or more. This is where the big issue is.
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The Big Issue of Long-Term Care (1)
The big issue of long-term care is not what happens if you go into a care facility and die — the issue is what happens if you go into a care facility and continue to live. Some people are in care facilities for 10 or 15 years. Ten or 15 years in a nursing home at $82,000 to $92,000 per year, or more in a metropolitan area, is a problem. A big problem.
The Big Issue of Long-Term Care (2)
Big problems have big consequences. The nature of those consequences depends on your situation. Let’s consider two cases.
In the first case, consider that you have no dependents. If you have no one depending on your income or assets, you might choose to ignore the problem. After all, you can’t get blood from a stone — you run out of money and that’s it. You’ll end up somewhere and not paying for it any longer. But you won't have anything to pass on. Well, not unless you had a lot of assets.
Or, the other case, you might have someone depending on your income or assets. That someone could be a spouse or significant other. Whomever.
If other people are depending on your assets and income and you run out of those things due to a long-term care need, you’re not the only one who suffers.
The non-nursing-home person is likely to bear the greater financial hardship if you deplete your assets with a nursing home stay. That’s the other real problem.
This is why you can’t just multiply the average years times costs and take your chances. Someone else’s standard of living depends on your making prudent financial decisions. And taking an unnecessary risk with someone else’s standard of living isn’t prudent.
The Middle-Class Sandwich
We saw above where women draw a short straw when it comes to long-term care need. Now for the middle class. Let’s consider what happens at a range of incomes and assets. We’ll start at the bottom.
Let’s say you’re one of the unfortunate masses who have little in the way of assets or income to work with in retirement. There’s both not a lot to protect and not a lot you can do to protect it. Basically, if you have $200,000 or less in assets and your primary income is Social Security, you probably shouldn’t be spending money on long-term care insurance.
On the other end of the spectrum, let’s say you’ve done well and have not one but two or more million saved for retirement. You may not need long-term care insurance. If the primary concern is being able to maintain a standard of living for a non-nursing home spouse, then you should be fine.
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Of course, you'll probably want to have long-term care insurance and take other steps in order to preserve assets for your heirs. But you can afford it. You may not be happy about it, but you can afford it.
Then you have the middle-class sandwich. You’re sandwiched between those who have basically nothing to lose and those who have ample resources to work with. You have maybe a half million, or even a million, saved for retirement. Maybe a bit of a pension to go along with it. You can live a nice comfortable retirement because you have prudently built like you were supposed to.
But those damn statistics come back into play — what happens if one of you goes into a nursing home and lives? There’s not enough money for that. And long-term care insurance is damned expensive.
You really need to understand what all of your options are — how to position yourself with or without long-term care so that no matter what happens, you don’t lose everything you’ve worked for. That’s the need. And that will be the subject of next week’s column.