The AARP and AICPA recently conducted surveys to gauge retirees’ biggest concerns. Number one was running out of money which is not too big of a surprise. However, number two was health and long-term care planning – not losing a loved one, staying busy in their next phase, finding time to be with family and grandkids. Health concerns trumped all of those.
The issues surrounding long-term care particularly are often easier to avoid rather than plan for. Most people take the position of apathy – let’s just deal with it later. As the chart below shows, if you are 65, chances are you will need some kind of care. If you’ve had family or friends deal with long-term care of a loved one, you know how much emotional and financial strain planning reactively can cause.
Source: Long-term care over an uncertain future; what can current retirees expect? Winter 2005 – 2006. Peter Kemper, Harriett L. Komisar, Lisa Alecxih. JP Morgan Guide to Retirement
Having a plan in place to address the possibility can go a long way toward easing some of the related concerns. As you think about your need for a plan, below are a few questions for consideration:
- Does your family have a health history that required care?
If so, the probabilities above are likely much higher for you and this should be a bigger priority in your long-term planning.
- What would you do if your loved one had a health issue leaving them largely incapacitated?
Would you or your family provide the care? Would you want to have help – either in home or an assisted living facility?
- If you choose family provided care, is that what is best for the caregiver and family?
Often time’s family feels a duty to step in. A recent Genworth study found that caregivers appreciated the opportunity to care for their loved one and were proud to be able to do so… However, their personal health and well-being was often negatively affected, and the stresses of the situation impacted their relationships with family and friends. Some of the affects are outlined below:
- 43% said Caregiving had a negative impact on health and well being
- 41% said Caregiving caused depression, mood swings, resentment
- 35% said Caregiving had a negative impact on relationships with family, spouse
- 31% said Caregiving resulted in abnormal high levels of stress
- If outside care is needed, what will the financial impact be on your family’s retirement plan and quality of life?
If a caregiver comes to your house a few hours a week the cost could be minimal. However, the chart below gives average costs of a full time nursing home. In the Chicago area that could mean $105k per year for care and the average nursing home stay is ~2.5 years.
If that level of out of pocket expense could derail your family’s long-term financial plan then there are options available via insurance to help if the need arises. There are different flavors of insurance you could purchase; however, the costs for long-term care insurance in general have continued to increase drastically over the last 7 years. Since 2008, the entire long-term care industry has been in flux as three major headwinds have plagued long-term care insurance providers
- Cost of care increased faster than they projected
- More people claimed benefits than they projected
- Interest rates are at historically low levels stunting their own investment returns
That trifecta has led to many of the top providers leaving the long-term care insurance space and a majority of the providers that have stayed, raised premiums by 40%+ on current customers to maintain financial solvency. In an effort to find a more affordable solution, insurance providers have created new products that are cheaper but also more complex. In future blogs we will outline the options.
The main takeaway is there is no one size fits all for long-term care planning. If you are in your 50s or approaching retirement, you should consider the questions above to determine the urgency and best next steps for your long-term care plan.
Neil Teubel, CFP® is a Wealth Manager at BDF and also leads the Financial Planning Committee. The FPC champions the continual improvement of the firm’s planning processes so that every client gets the most comprehensive and thoughtful planning possible. The committee ensures BDF’s team has cutting-edge tools and the latest information covering the entire financial planning landscape to best serve our clients. Neil received an undergraduate degree in Financial Planning from the University of Illinois Urbana-Champaign and a master’s degree in Personal Financial Planning from Texas Tech University, where he earned his CERTIFIED FINANCIAL PLANNER™ certification.