When the bill comes, many Americans are going to be shocked to find they didn’t save enough for long-term care.
Every day in America, more than 10,000 people turn 65, and by 2030, all Baby Boomers—those born from 1946 through 1964—will be at least that age.
United States Census figures for 2020 have the overall population at 331 million, with 55.2 million (16.7%) 65 or older, growing to 20% by 2030. The 2050 estimate is 90 million.
Seven out of 10 of these people will need some kind of long-term care in their post-retirement years, according to the U.S. Department of Health and Human Services, but far fewer have set aside adequate funds to cover the cost, said Kyle Ridenour, insurance advisor with BOK Financial Advisors. In fact, only about 10% of those age 65 or older have long-term care insurance.
Worse yet, many of those approaching retirement age aren’t really even talking about it, he said. Instead, they should be having open and honest conversations with family members about the care they prefer and at what cost, and then get started by working with a financial advisor.
A convenient cost calculator and description of the various service types can be found here.
Paying for it
The price for long-term care is high and going higher, Ridenour said.
According to a 2021 Genworth Cost of Care study, the 2022 median annual cost nationally for a semi-private room at a nursing home is $94,900; $108,405 for a private room. By 2030, cost estimates are 30% higher. Rates for alternative service levels such as in-home care and assisted living are rising similarly.
And while year-over-year increases in 2021 were less than 3%, 2022’s inflation of roughly 8% has made rising operating costs (food, energy and wages) the number one concern of facility operators, exceeding staffing, according to the NIC Wave 44 survey in summer 2022.
The rising care costs are bringing more worry for patients, too. Whereas 12% surveyed were concerned about their ability to pay for care in 2019, that tripled to 37% in 2022.
It’s a dramatic rise, and people need to be prepared, Ridenour said.
“Many people are under the impression that Medicare will pay for long-term care,” said Ridenour. “And that’s not entirely accurate. In the best case scenario, Medicare will only pay for up to 100 days of care.”
When it comes to saving for long-term care, Ridenour said people who haven’t begun planning for long-term care tend to fall into three categories:
- In denial
- Aware, but procrastinating
- Wealthy enough to self-insure
Ridenour said when it comes to long-term care planning, financial advisors ask three main questions:
- Where do you want to receive the care if needed? Maybe it’s at home, an assisted living facility or a nursing home.
- Who do you want to provide that care? Is that a specific facility or maybe a certain relative?
- What is your family’s skill level, comfort level and preference for caring for you if the need arises?
“More often than not, budget determines the care plan, not preference,” he said.
And the inability to plan can impact generations to come.
“Women tend to live an average of five years longer than men, and yet 75% of the unpaid caregivers in the country are women,” Ridenour said. “This means women are taken out of the workforce to provide care, which cuts their ability to save for their own long-term care. And in that way, this decision can easily impact multiple generations.”
Gender aside, he said the cycle applies to those in the so-called "sandwich generation" as well. "If you're paying for your parents' care and your children's education, unfortunately, you may not have the opportunity to be saving for your own long-term care—but you should," he said.
Of surveyed adults supporting multiple family members, 41% said they are either just meeting or are not meeting basic expenses, thus compromising their ability to save for their own retirement or future care needs.
“It’s daunting,” said Ridenour. “Navigating insurance and government assistance programs can be stressful, and saving this large of an amount can be daunting—but it’s important to get started.”
Start by talking to a financial advisor who will you help determine which type of long-term care insurance policy is the right fit considering age, health, wealth, care preferences and other variables.
Historically, “pay as you go” contracts have been the most common, where clients paid long-term care insurance premiums in regular, routine installments.
Estimates and coverages vary, but a healthy 55-year-old male might incur $45,000 in premiums by age 85 for policy benefits of $165,000. And it may never be used, depending on circumstances.
Now, a single deposit contract is more popular. “This kind of multiplies the benefit of the dollar invested four or five times,” he said. “So a $25,000 deposit into a long-term care insurance policy could provide, depending on age, four to five times that benefit.”
Also popular in recent years are hybrid policies that combine a life insurance-type savings component with a conversion option applicable to long-term care expenses.
“Most financial advisors know the different types and can help find the best fit for you and your long-term care preferences,” he said. “Long-term care is personal and often emotional—with numerous factors to consider. Creating and acting on a plan early will help ease that burden and help you achieve the care of your choice without undue burden on loved ones.”