Personal finance

Long-term care needs among retirees varies widely, new research shows

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One of the biggest unknowns for retirees may be whether they’ll eventually need long-term care — that is, help with daily living activities — and to what degree.

Many people may end up requiring little care if they need any at all, according to new research from the Center for Retirement Research at Boston College. About 20% of 65-year-olds will not need any long-term care during the rest of their life, and another one in five will need only minimal support. 

At the same time, though, about 25% will need significant help for more than three years. Another 38% will fall somewhere in the middle, needing a moderate amount of care for one to three years, the study shows.

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A strong indicator of how much assistance a person will need? Whether they are healthy in their late 60s, according to the study.

Additionally, being married translates into less likelihood of needing long-term care, the research shows. For women, 19% of those who are married will need none at all, compared with 14% of those who are single. For men, 17% need no support if they are married, compared with 13% who are unmarried.

The uncertainty of long-term care is a challenge when it comes to retirement planning, experts say. In other words, it can be tricky to determine how to prepare for an unknown cost.

“There are no good answers, only lousy ones,” said certified financial planner David Mendels, director of planning at Creative Financial Concepts in New York. “So you pick your best lousy answer.”

Medicare — relied on by most retirees — generally doesn’t cover long-term care. (Skilled nursing care and rehabilitative services do get limited coverage related to certain hospital stays.)

Monthly costs for such support can be eye-popping: a median $4,300 for care at an assisted-living facility ($51,600 yearly), $7,756 for a semi-private room in a nursing home ($93,072 a year), $4,576 for a home health aide ($54,912 annually) and $4,481 for homemaker services ($53,772 a year), according to Genworth.

“It’s horrendously expensive if you end up in that group needing significant care,” Mendels said. “But you really have no idea if you’ll need that, unless you already know you have major health problems.”

So what are your options? There are several.

Some retirees choose to “self-insure” — that is, rely on their own assets — to fund the unpredictable cost. That could mean eventually spending retirement savings, getting a reverse mortgage or, say, selling a vacation home. Other options include leaning on family members or spending down (or shielding) assets to qualify for Medicaid-sponsored nursing-home care.

The most straightforward 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 also have fled the space.

The average annual premium cost for initial benefits worth $165,000 for a 60-year-old couple is anywhere from $2,600 to $8,750, depending on whether or by how much the benefits increase yearly, according to the American Association for Long-Term Care Insurance.

However, there’s a 50% chance of never needing to use the insurance, according to the association.

Some advisors recommend that clients consider a hybrid policy that combines life insurance with long-term-care coverage. That can be done through a new purchase or by converting an existing policy — term or whole — to the option.

While the particulars of each policy vary, the idea is that you can tap the death benefit during your lifetime if you need it to pay for support — although doing so reduces the amount that your heirs would inherit. Some hybrid options provide long-term-care coverage beyond the death benefit.

However, you generally need to be insurable — that is, pass medical underwriting — just as with a straight long-term-care policy.

You also typically need a pot of money to fund it. Some insurers ask for an upfront lump sum, while others allow you to spread the premium payments over a set number of years.

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