What is Long Term Care?

June 27, 2022

Long Term Care is a giant dark cloud that hangs over retirement planning.  Not only can the need for long term care rob your quality of life, it can financially ruin you in the process.

Statistically speaking, the longer you live, the more likely you are to require long term care in some form.  To put it simply, many of us live long enough to get frail and need help taking care of ourselves.  Sometimes that frailty is mental and other times it’s physical. 

According to a 2015 Department of Labor Study, 47% of men and 58% of women over age 65 are going to require some form of long term care in their lifetime.  That’s an alarming number.  Somewhere around half of all people over 65 are going to require assisted care of some sort. If we examine the number a little closer, there is some better news.  While 47% of men may need some sort of care, 79% of men will require less than 2 years of long-term care.  Among women, 70% will need less than 2 years of care. 

What’s the cost of this care?  Can the need for long term care financially ruin a family?  Full facility-based care can cost $80,000 per year or more.  Community care, assisted living, and at-home care can be quite a bit less expensive but cannot provide the level of care needed for some.  In addition, those that have a healthy surviving spouse or capable family members can receive the care they need for free or at minimal expense. 

What can we take from this that matters? 

  1. If a couple achieve age 65, the odds of one of them needing long term care for 2 years or more is about 50%. 
  2. Long term care can be very expensive.
  3. Each situation is unique…but must be planned for.

While planning for long-term care needs is a priority for the later stages of one’s life, it isn’t at the core of a necessities-based retirement plan.  If a person were to go completely broke in the process of trying to finance their needed care, Medicaid has programs that can step in and help (subject to some fairly harsh restrictions).

How should we attack the prospect of needing long term care and incorporate that into a retirement plan?  It depends on the answers to several questions.

  1. Are you wealthy enough to pay for long term care out of pocket for an extended period?
  2. Do you have such limited assets that you will most likely qualify for Medicaid coverage?
  3. Do you wish to secure assets for others after your death?

Many other factors play a part in how to plan for your potential needs, but the ones above are critical to know before beginning a plan.

What is out there to help?  In the financial services industry, long term care insurance policies gained much popularity starting in the late 90’s.  Sadly, insurance companies mispriced the policies and many have discontinued them, gone bankrupt, or raised premium significantly on them.  Lately a new hybrid life insurance policy has become more popular.  A healthy person can get life insurance that can pay the face value for EITHER long term care OR a death benefit.  They are fairly innovative and a viable solution for many.  If you were to purchase a $250,000 policy and did not need long term care, then $250,000 will be left to the beneficiaries at your death.  If you did need long term care, then a benefit can trigger and start spending some of that $250,000 to fund your need, with whatever may be left over to pay a death benefit.

Funding basic living needs is the #1 priority of any retirement plan.  You must have a bulletproof plan to cover your essential expenses before you worry about anything else.  Beyond that, planning becomes more about priorities.  Long term care planning can be one of those priorities.  While it’s not essential that a plan be put in place to pay for something that may or may not happen, everyone should be aware that they may need care and that care can be very expensive.   

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  All performance referenced is historical and is no guarantee of future results.  All indices are unmanaged and may not be invested into directly.