Contributed by: Lewis J. Walker, CFP®
Underpinning most goals, aspirations, and “bucket list” dreams, is the assumption of good health. Of the top eight retirement worries of surveyed workers age 50 or older, three were health related: Declining health that requires long-term care; lack of access to affordable and adequate healthcare; cognitive decline, dementia, Alzheimer’s. You are healthy now. Or you or a loved one has a condition, managed for now, but one that could cause serious problems later and a need for higher levels of care. For planning purposes, what are the costs? What are the odds?
Worries accelerate as one thinks about retirement. Concerns are growing among 40 and 50 year olds as some deal with aging parents or even grandparents with impairments and limited resources. The caregiver population is expanding.
Incapacity is not a respecter of age. A 2010 NPR broadcast series focused on “A New Nursing Home Population: The Young.” Noted the report, “Young people ages 31 to 64 now make up 14 percent of the nursing home population. For the past 10 years, adults ages 31 to 64 have been the fastest-growing population in nursing homes.” The report is six years old but we continue to learn of vehicle accidents or other mishaps, life threatening illness, or substance abuse that require high levels of care.
To plan one must understand the costs and have some idea of the odds. Based on the Genworth 2016 Cost of Care Survey, April 2016, the following average monthly and annual costs for various levels of care are as follows for the Atlanta, Georgia, metro area: Home health care, home health aide─$3,337 mo.- $40,044 yr.; Adult day care─$1,408 mo.-$16,896 yr.; Assisted living facility─$3,253 mo.-$39,036 yr.; Nursing home care, semi-private room─$6,540 mo.-$78,480 yr.; Nursing home care, private room─$6,996 mo.-$83,952 yr.
As noted, costs are an average for the Atlanta metro area. More desirable and/or upscale accommodations are more costly than the average. Inflation of health care costs have outpaced the CPI. Nursing home costs rose at an annual rate of 4.5% between 2008-2012. The aging Baby Boomer wave and growing demand, especially for higher levels of care, suggest that inflation will continue to be a challenge to retirement budgets and investment portfolio objectives.
Of those age 65 (based on 2005 data), about 33% are expected to need long term care (LTC) by 2020. Currently 78% of those that need LTC, receive care from family and friends. Roughly 34 million caregivers provide care for someone over age 50.
Age 79 is the average age of admittance to a nursing home. The average stay is close to 3 years; 10% will stay 5 or more years. By 2020 it is expected that 40% of deaths in the U.S. will occur in nursing homes. There is a 68% probability that a person over age 65 will at some point be cognitively impaired or unable to complete at least two activities of daily living─including dressing, bathing, eating, transferring (such as from bed to toilet)─over his or her lifetime. (Data from Morningstar, 40 Must-Know Statistics About Long-Term Care, by Christine Benz, 8/9/2012.
Medicare has very limited long-term care (LTC) benefits, and even those have strings attached. To qualify for Medicaid, a person be devoid of most of assets, essentially poor. LTC expenses are a risk. You have but two choices; retain the risk and fund potential expenses out of your financial assets, or transfer all or some of the risk via insurance.
Illustrating the escalation of expenses, insurance companies have been raising rates for traditional LTC policies. While a traditional policy may give one “more bang for the buck” if they go on claim, new hybrid policies can combine life insurance with a multiple of long term care benefits. The appeal here is that if one does not use all of the benefits for health care, money is available to go to the estate and/or heirs. As with any insurance, you have to apply while you are relatively healthy.
Financial advisors are diligent in discussing options with heirs lest they be sued by survivors for not bringing up the subject of LTC and how to best deal with uncertainty. One spouse may be able to care for an impaired mate, but at what cost physically, mentally, and financially? Will the surviving spouse or partner be financially independent, or will children or other loved ones have to step in?
The best way to deal with any challenge, is to identify alternatives, resources, and expectations. A family crisis is a painful experience.
Lewis Walker is a financial planning and investment strategist at Capital Insight Group; 770-441-2603. Securities and advisory services offered through The Strategic Financial Alliance, Inc. (SFA). Lewis Walker is a registered representative and investment adviser representative of SFA which is otherwise unaffiliated with Capital Insight Group. This information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed.