Seven years after Bill left his career in engineering, he and his wife, Grace, felt confident about their financial security. They had saved enough to enjoy their lifestyle, travel the way they always dreamed of doing, and spend time with their children and friends. With a diversified investment portfolio, they were convinced that they were well-positioned to weather any uncertainties ahead of them. Then the unexpected happened. Bill suffered a stroke, and they found his compromised health condition would require a level of care they simply had not anticipated.
Overlooking this key aspect of living longer may leave people vulnerable to a surprising and sudden change in their financial and emotional circumstances. But planning ahead lets families protect their wealth, maintain relationships with loved ones, and achieve better financial outcomes.
The Misconceptions About Long-Term Care Expenses
Myth 1: It won’t happen to me
Most people think that unpleasant things like serious illness are more likely to happen to others than to themselves. As a matter of fact, most Americans believe they won’t need long-term care, even though the U.S. Department of Health and Human Services estimates that 70% percent of all individuals turning 65 will need some form of long-term care during their lifetime. In a recent survey conducted by Lincoln Financial, just over 2 in 10 respondents said they are likely to need this kind of care. And just 1 in 10 have discussed care planning with a financial professional. While it’s understandable to want to avoid discussing worrisome topics, planning ahead as a family to help protect wealth from long-term care expenses may help loved ones get the care they deserve in the way they want.
Myth 2: Medicare and Medicaid have me covered
Many people avoid conversations about how to address long-term care costs because they think Medicare or Medicaid will pay for all of these expenses. In fact, Medicare does not cover long-term care in the event of an injury. It may cover a portion of skilled nursing facility costs for up to 100 days. And it only provides limited amounts of coverage for certain types of home health care.
To qualify for long-term care benefits under Medicaid, an individual must have limited resources and spend down assets to a diminished state that demonstrates the need for governmental support. Spouses are also capped on the amount of assets they can own and the income they can earn.
There are a number of other drawbacks to relying on Medicaid. When individuals spend down their assets, they incur any resulting taxes. Ultimately, these requirements mean that they may not be able to stay at home, choose where to receive care, meet other financial obligations, or help their family members.
Myth 3: My family will be able to take care of me
In past generations, spouses and children took care of their loved ones when they needed care. Why can’t the same approach work today?
Many spouses plan to and do care for their loved ones when long-term care situations arise, but eventually this outlay of time and energy exacts a cost. Even if one spouse is healthy and strong enough to provide care to the other, that ability may change as the couple ages. And the caregiver spouse tends to suffer from the emotional and physical stress of caring for the other. Studies have found that a woman taking care of her disabled spouse is almost six times as likely to suffer from depression or anxiety than normal.
When a spouse can no longer provide care or needs help providing care, grown children often step in. Yet getting assistance from a grown child with activities of daily living, such as eating, dressing, and bathing, may be uncomfortable, creating a role reversal that affects the entire family. In addition, women caring for parents are twice as likely to experience depression or anxiety as non-caregivers.
Myth 4: That’s what my savings are for
Many people expect to pay for long-term care costs out of pocket or with their investment assets. Some people prefer this strategy because they fear wasting the cost of insurance if they never need care. Yet even those with sufficient wealth and retirement income need to realize that paying for care costs out of pocket will likely reduce their total investment assets, which may reduce their income and increase their tax exposure — a painful chain of events. Considering that most long-term care situations last multiple years, the financial impact on their total savings — and their style of living in retirement — may be significant.
The national average fee for a home health aide is $21.77 per hour, which may quickly add up to $3,500 per month. Yet the costs are significantly greater for skilled home health care: The national average fee for a registered nurse is $79.27 per hour, which may cost nearly $13,000 on a monthly basis. And the national cost of a private room in a skilled nursing home is $97,611 per year, with costs rising to $147,982 in cities like Boston.Single or multiple instances of home or nursing care within a family may significantly impact the retirement portfolio — and leave a healthy spouse with less wealth to live on.
Most importantly, crafting a well-made plan may prepare the family and provide guidance for a loved one at a critical moment. Should they provide care themselves? Can they afford to get professional help? What would their loved one want, if it’s not clear? Talking about the challenge of long-term care costs in advance, and making a sensible financial plan, may help protect the wishes and emotional well-being of the entire family.
The Long-Term Care Funding Continuum
Fortunately, there are more ways than ever to protect wealth from long-term care expenses. And while these options are presented as distinct choices, they could be blended to suit a range of needs and circumstances.
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Whitepaper: Protecting wealth from long-term care expenses
30 Facts to Know About Long-Term Care Planning