Although it is estimated that someone in America turning 65 today has almost a 70% chance of needing some type of long-term health care services, the reality is that many families are failing to plan sufficiently to cover such costs. A 2024 study conducted by Jackson National Life Insurance Company and the Center for Retirement Research at Boston College showed only 27% of those surveyed believe they will require long-term care and that 2/3 of pre-retired individuals are underestimating their retirement health care expenses.
Are you prepared? The average use of long-term care services is three years with the national annual median cost of a semi-private room in a skilled nursing center equaling $111,325 and the annual national median cost of an assisted living community equaling $70,800 (Genworth Cost of Care Survey 2024). In-home care services averaged $34/hour in 2024. Costs of care vary by geographic region. Long-term care costs often start with services such as home visits and then transition to additional services up to full-time care.
There are essentially 4 options to pay for long-term care costs: 1) traditional long-term care insurance 2) government assistance, 3) hybrid life insurance or annuity benefits with long-term care coverage and 4) personal savings. Although this is a common misconception, Medicare does not pay for nursing home (skilled nursing facility) costs or home health aides. Medicare only covers short-term skilled nursing care -for example, a rehab stay in a skilled nursing facility after surgery for less than 100 days.
Long-term care insurance policies provide coverage for in-home care, assisted living communities, skilled nursing facilities and memory care. However, unless the policy was purchased years ago, traditional long-term care insurance may be cost prohibitive for many people. Few insurers even offer traditional long-term care insurance policies. In addition, the older you are, the more expensive the insurance premiums will be, or you may develop a health issue that prevents you from being approved. The general rule of thumb is you should purchase such a policy by the time you are 50 years old.
Hybrid life insurance policies provide that you can draw down on the death benefit to pay for long-term care, and most will continue to provide coverage even if the entire death benefit is used. The downside is obviously that there is then a reduced or maybe even no death benefit for the family. Long-term care annuities provide long-term care insurance at a multiple of the initial investment amount, but today’s interest rates have made it challenging for the annuity companies to offer this coverage, and these annuities may be hard to find.
Government assistance can be an option for some families, but there are extremely low asset limits that must be met in order to qualify for Medicaid’s skilled nursing facility coverage. Certain types of planning tools are available to help you protect assets and still qualify for government assistance, but planning generally needs to be done at least 5 years in advance of needing long-term care. Veterans may also qualify for long-term care services through the Department of Veteran Affairs.
Personal savings will provide the most flexibility for care options, but you should make sure that your retirement plan has built in these potential expenses. You should work with your financial planner to estimate expected future health care expenses. Be sure to involve family members to discuss whether they are willing or able to assist with some of the caregiving responsibilities.
Long-term care is a subject many people do not like to discuss, but it is essential to include this component in your retirement planning.
