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One of the biggest unknowns for retirees may be whether and to what extent they will need long-term care, that is, help with activities of daily living.
Many people may require little care if they need it, according to a new study from the Center for Retirement Research at Boston College. About 20% of people aged 65 will not need long-term care for the rest of their lives, and another in five will need minimal support.
At the same time, however, around 25% will need significant help for more than three years. According to the study, an additional 38% will fall somewhere in the middle, requiring a moderate amount of care for one to three years.
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A strong indicator of the help a person will need? If they’re healthy in their late sixties, the study found.
Plus, being married results in a lower likelihood of needing long-term care, research finds. For women, 19% of those who are married will not need it at all, compared to 14% of those who are single. For men, 17% do not need any help if they are married, compared to 13% who are not married.
The uncertainty of long-term care is a challenge when it comes to planning for retirement, experts say. In other words, it can be difficult to figure out how to prepare at an unknown cost.
“There are no right answers, only bad answers,” said certified financial planner David Mendels, director of planning at Creative Financial Concepts in New York City. “So you pick your best lousy answer.”
Medicare – which most retirees rely on – usually does not cover long-term care. (Skilled nursing and rehabilitation services have limited coverage associated with certain hospital stays.)
The monthly costs of such support can be staggering: a median of $ 4,300 for assisted living care ($ 51,600 per year), $ 7,756 for a semi-private room in a nursing home ( $ 93,072 per year), $ 4,576 for home help ($ 54,912 per year) and $ 4,481 for home help services ($ 53,772 per year), according to Genworth.
“It’s horribly expensive if you find yourself in this group in need of significant care,” Mendels said. “But you really don’t know if you will need it, unless you already know that you have serious health problems.”
So what are your options? There are many.
Some retirees choose to self-insure, that is, to rely on their own assets, to fund unforeseen costs. That could possibly mean spending retirement savings, getting a reverse mortgage, or, say, selling a vacation home. Other options include relying on family members or spending (or protecting) assets to qualify for Medicaid-sponsored nursing home care.
The simpler solution – long-term care insurance – has become too expensive a proposition for many consumers, contributing to a 60% drop in sales from 2012 to 2018, according to the Secure Retirement Institute. With claims exceeding expectations, many insurers have also fled the space.
According to the American Association for Long-Term Care Insurance, the average annual premium cost for initial benefits valued at $ 165,000 for a 60-year-old couple is between $ 2,600 and $ 8,750, depending on whether benefits increase every year.
However, there is a 50% chance of never needing to resort to insurance, according to the association.
Some advisers recommend that clients consider a hybrid policy that combines life insurance and long-term care coverage. This can be done through a new purchase or by converting an existing policy – temporary or whole – as an option.
While the details of each policy vary, the idea is that you can collect the death benefit during your lifetime if you need it to pay child support, although this will reduce the amount your heirs would inherit. Some hybrid options offer long term care coverage beyond the death benefit.
However, you generally need to be insurable, that is, pass medical underwriting, just like with a long-term care policy.
You also usually need a pot of money to fund it. Some insurers charge an initial lump sum, while others allow you to spread premium payments over a number of years.