Are You Making a Long-Term Care Plan?

The cost of long-term care can be substantial—but even the most financially secure people are totally discounting the looming threat of long-term care in their retirement planning.

The Motley Fool’s recent article, “Baby Boomers Are More Prepared for Death Than Life, ” says most baby boomers are either unprepared or haven’t planned for a long-term care expense, according to a Bankers Life survey of 1, 500 middle-income Americans aged 54 to 72. The results show that baby boomers were more likely to plan for their own death, than to have a long-term care plan. About 81% made some kind of funeral arrangements for when they pass away, but just 32% have a plan for how they’ll get care in retirement. The lack of long-term care planning is a significant issue, when you compound this with the harm that such a huge unexpected expense has on a person’s retirement savings, especially in cases where a nest egg is small to begin with.

DHHS believes that the average total cost of care for a retiree is $138, 000. However, 79% of the respondents said they have set no money aside for their retirement care needs. For those who do have long-term care savings, the median amount saved is a mere $40, 000. Nonetheless, 67% of those surveyed said they know someone who required care in retirement and 36% said they can’t rely as much on friends or family for around-the-clock care. Given all these negative numbers, why aren’t more boomers better prepared? The article gives us three surprising reasons that contribute to this lack of awareness and lack in savings for long-term care:

1. Overconfidence. Boomers may overestimate their ability to manage future long-term care costs. Three-fourths of those surveyed by Bankers Life said they were confident in their ability to handle future healthcare costs. A misplaced confidence could be why boomers used more effort and money to plan for their deaths. About half of the respondents had fewer than $5, 000 saved in an emergency fund, and 33% had fewer than $1, 000 set aside for emergencies. With the high cost of long-term care, and the collective weakness in emergency funds, boomers’ confidence in being able to manage long-term care costs appears unrealistic. These people may be relying on Social Security benefits and Medicare too much.

2. Lack of basic Medicare understanding. Medicare covers only some long-term care expenses like skilled nursing care after a hospital stay, but there are limits. It also doesn’t pay for custodial or home healthcare. Most of those surveyed believe that Medicare will pay for a future healthcare event, and 56% mistakenly identified Medicare as a source to pay for future long-term care.

3. Not knowing where to get advice. The greatest obstacle to planning for care in retirement, is a lack of trust. About a third of boomers surveyed said they need and want advice, but don’t know whom to trust. Most seek the help of a family member (36%), and just only 7% ask a health professional. A lack of trust or willingness to seek professional help may lead boomers to either put off a decision or perhaps not fully understanding their planning options.

The best use of a long-term care insurance policy may be folding it into a more comprehensive plan. Talk to an elder law attorney about what makes sense for your situation.

Reference: The Motley Fool (March 27, 2019) “Baby Boomers Are More Prepared for Death Than Life”