Life goes fast and seems to speed up the older you get. It seems like just yesterday that you started your career and now “suddenly” your thinking about retirement. It’s hard to tell what twists and turns will happen over the next twenty or thirty years. But, one thing is certain despite our efforts to ward off old age – declining heath and ability to do all the things we did when we were young. The baby boomers have seen this happen with their parents and now they are facing it themselves.
Here’s the problem: Long-term medical care costs are staggering. The median cost for nursing home care is $149,797 according to Genworth. Assuming 5% annual increases, the projected cost in 2040 is expected to be $397,939! And, according to a 2019 Wall Street Journal article, seven out of 10 people turning 65 today will need some form of long-term medical care services in their community, at home, or in a facility. Women typically need care longer (avg of 3.7 years) and men 2.2 years. Only 20% will need care longer than five years. Based on those averages, one has a 70% chance of spending anywhere from $300,000 for home care to $1,500,000 for care – and that’s just for one person if you are married! So, what’s one to do?
We think there are four options:
- Self-insure. Great option for those who have the investment assets available to pay the potential costs.
- Buy long-term care insurance. Great option for those who don’t want to see their assets depleted if they have accumulated money in investment accounts. If you need care, you have a pool of money from which to draw to help offset the costs and you have the freedom to go to facility you wish. But, the coverage is very expensive now compared to ten years ago and you need to be in good health.
- Buy into a Continuing Care Retirement Community. You are not buying real estate, you are buying a form of insurance. You pay a large entry fee to get into the community and a monthly fee. But, for that fee, you are covered no matter your level of care (independent living to nursing care and any step in between). The problem is you need to be healthy enough to qualify to get in to the facility as they don’t want to insure someone who could go right to nursing care! This is a great option for those who are tired of maintaining the family home and find the community lifestyle appealing.
- Roll the dice. You are willing to take the risk. Perhaps you don’t have a spouse or heirs to provide for, or, you are OK with going on Medicaid if you run out of money.
We have found that every situation is different. There is no one size fits all solution. A good financial advisor can help you weigh your various options and choose a course that is right for you and your family. The key is to start planning for these issues early – when you have choices.