Long-term care provider talking with elderly woman

By Jim Stork, CFP, CFA Principal, Pinnacle Financial Group

Jim StorkAging is a fact of life and it comes with certain realities.  One of those realities is the potential need for long-term care.  More than half of Americans turning 65 today will need some type of long-term care during their remaining years. And long-term care is not generally covered by private health insurance or Medicare, so it is crucial to have a plan.

Long-term care encompasses a variety of services that assist those who can no longer perform everyday activities on their own, such as dressing, eating, and bathing.  A chronic illness or a physical impairment such as a stroke or heart attack can lead to a need for long-term care, as can cognitive issues such as Alzheimer’s.  

Who Needs Long-term Care?

There are several factors that increase the risk of needing long-term care.

  • Age – The risk generally increases as people get older.
  • Gender – Women are at higher risk than men, primarily because they often live longer.
  • Marital Status – Single people are more likely than married people to need care from a paid provider.
  • Lifestyle – Poor diet and exercise habits can increase a person’s risk.
  • Health and family history – These factors also affect your risk.

Types of Long-Term Care

There are four basic types of long-term care:

  • Home-based health care – Remaining at home and hiring a service for household or care-related tasks – or asking family and friends to help out. Locally, Home Helpers and Independence-4-Seniors provide home health care services to seniors.
  • Adult day services facilities – provide respite care for seniors, as well as support services for families. These can also include community services such as the transportation services provided by Interfaith Community Partners (ICP).
  • Assisted living facilities – residential facilities that offer healthcare and personal services.
  • Skilled nursing facilities – residential facilities that provide around-the-clock medical and personal care to residents.

Costs of Long-Term Care

According to the U.S. Department of Health and Human Services Administration on Aging, the average annual expenditures for long-term care across the United States are:

  • Home Health Care – Home Health Aid (42 hours per week, 52 weeks) – $45,864
  • Nursing Home – Private Room (365 days in residence) – $83,580
  • According to AARP, the national median cost for a private bed in a nursing home in 2019 was $102,200.
  • However, those are nationwide averages that include many areas with a lower cost of living.  You should expect to pay at least $8,000 – $10,000 per month for a private room in a nursing home providing skilled care in Chicago and the suburbs.

How To Pay for Long-Term Care?

  • For those with modest financial means, Medicaid will cover the cost of long-term care when their savings run out.
  • Those with a substantial financial cushion can often self-insure this risk with their own savings.  In our experience, it typically takes investments of at least $2MM to be able to credibly self-insure this risk.
  • For those in the middle, long-term care insurance is an excellent way to offset some or all of the costs of long-term care.  
  • However, be forewarned that long-term care insurance policies are extremely expensive, which may make it difficult to find room in your budget for the cost of the annual long-term care premiums.
  • Most experts suggest that the optimal age to buy long-term care insurance is between age 60 and 65. Start any earlier and you will pay premiums for decades before you are likely to need the care.  Wait any longer and a health issue may make it impossible for you to get coverage at any cost.

No matter how much forethought and effort you put into your plan for long-term care, things happen. When life throws you a curve, make sure you seek the input of your family, trusted friends, and your financial advisor. The journey is always easier when you create a plan for the unexpected.