It’s no secret that as we age, our health depletes. While we can help our overall wellness through lifestyle changes and healthier habits, there’s another, less obvious way we can help ourselves (and loved ones) as we grow older: planning for long-term care.
Despite the anticipated growth in the country’s retirement-age population – with the number of people turning 65 every day will increase to more than 12,000 in 2024 – very few are insured for the costs of long-term living, and most don’t understand the basics of long-term care insurance, according to new data from the Nationwide Retirement Institute.
Further data shows someone turning 65 today has almost a 70% chance of needing long-term care in their remaining years, according to the Administration for Community Living. Women, on average, need care longer (3.7 years) than men (2.2 years).
The recent research shows most people don’t take action because they need clarification about how much help they can expect from the government for long-term care. In a survey by Genworth, two-thirds of people thought government programs would cover at least part of their long-term care costs.
But the truth is, as we age, the chances of needing long-term care increase. One way to curb long-term care effects is by having a solid LTC plan. Here’s how to get started…
Step 1: Calculate the Likelihood of Needing Care
The first step in crafting a long-term care plan is assessing your risk of needing such care. Consider your family’s medical history, lifestyle choices, and overall health. Are there hereditary conditions that might affect your future health? Age is also another factor to consider. The CDC’s data reveals that the most common age groups among long-term care residents are as follows:
- 7% of residents in residential care communities are under 65.
- 38% fall within the 65 to 84 age group.
- 55% are 85 years old or older.
It’s important to realize that some individuals under 65 may require long-term care due to developmental concerns, intellectual disabilities, or chronic conditions. By considering these factors, you can better estimate the likelihood of needing long-term care. Understanding your possible helps you lay out the foundation for your plan.
Step 2: Understand Costs
Long-term care can come with a hefty price tag, and it’s vital to have a clear understanding of the associated costs. Annually, Americans collectively spend a substantial $475.1 billion on long-term care, and more than one-third of U.S. adults will use long-term care nursing facilities, which can cost more than $100,000 a year. To navigate this terrain effectively, research the current expenses associated with various long-term care choices, such as home care, assisted living, and nursing homes in your state.
Remember that these costs vary significantly based on location and the required care level. Additionally, it’s imperative to factor in financing your long-term care while considering the impact of inflation. Given the current inflation rate (3.76%), it’s essential to calculate the realistic amount you’ll need. In Iowa, the average length of time people need care is 3 years. One-third of people may never need long-term care, but 20% will need it for longer than 5 years. On average women need 3.7 years of care while men need 2.2 years. It is projected that next year (2024), the average cost for 3 years of long-term care in Iowa will be $484,533 ($161,511 per year).
Lastly, it’s important to recognize that Medicare usually doesn’t provide complete coverage for all long-term care costs. Therefore, considering alternatives, such as long-term care insurance or other financial approaches, is essential. Medicare comprises several parts (A, B, C, and D), each addressing specific long-term care aspects. Enroll in the relevant parts that suit your requirements, and stay informed about open enrollment periods and any adjustments in coverage.
Step 3: Assess Your Resources
In planning for long-term care, it’s crucial to assess your financial resources thoroughly. This assessment involves examining various aspects of your finances to determine how to cover potential long-term care expenses while maintaining overall financial stability, particularly your retirement goals. Here are some key considerations in this step:
- Retirement Savings: Review your retirement savings accounts, such as 401(k)s, IRAs, or pension plans. Assess how much you have saved for retirement and whether you can allocate some of these funds to cover long-term care expenses. Be cautious not to deplete your retirement savings entirely, as it’s essential to help ensure your financial security during your retirement years.
- Investments: Take inventory of your investment portfolio, including stocks, bonds, mutual funds, and other assets. Determine if you have any liquid assets that could be used to finance long-term care. Keep in mind that selling investments may have tax implications, so consult with a financial advisor for guidance.
- Existing Insurance Policies: Check for existing insurance policies that may cover long-term care expenses. This could include long-term care insurance, life insurance policies with cash value, or certain annuities. Review the terms and benefits of these policies to understand how they can assist with long-term care costs.
- Other Assets: Evaluate any other assets you may have, such as rental properties, business interests, or valuable personal property.
Step 4: Explore Different Types of Long-Term Care
Understanding the various types of long-term care is crucial. There are several options available, and each has its own features and costs:
- Home Care: This involves receiving care and assistance at your own home. It can include nursing care, personal care, and help with daily activities. Home care allows you to remain in a familiar environment.
- Assisted Living: Assisted living facilities offer a balance between independence and assistance. Residents typically have living spaces but can access support with daily tasks and healthcare as needed.
- Nursing Homes: These facilities provide round-the-clock medical care and assistance for individuals with serious health conditions or disabilities. Nursing homes are suitable for those who require a higher level of care and supervision.
- Adult Day Care: Adult day care programs provide care and supervision during the day for older adults who live at home but need assistance or socialization. This option can give family caregivers a respite.
- Hospice Care: Hospice care is provided for individuals with terminal illnesses. It focuses on comfort and quality of life during the final stages of life.
Understanding the different types of long-term care options can help you make informed decisions about the care most suitable for your needs and preferences.
Step 5: Create a Care Plan
Now that you understand your potential long-term care needs, associated costs, and available resources, it’s time to create a comprehensive long-term care and estate plan. Here are a few factors to consider:
- Care Preferences: Specify your preferences for care, such as whether you want to receive care at home or in a nursing facility. Clarify your expectations regarding the level of care and any specific healthcare providers you prefer.
- Financial Strategy: Detail how you will finance your long-term care. Include information about your insurance policies, such as long-term care insurance, and potential income sources, such as retirement savings, investments, and other assets.
- Estate Planning: Consider incorporating estate planning elements besides your long-term care plan. Estate planning can involve the creation of a will, establishing trusts, or designating beneficiaries for your assets. This can help your wishes to distribute your assets are clearly defined and legally protected.
- Involving Loved Ones: Engage in open discussions about your long-term care preferences and financial arrangements with your family and loved ones. They must know your plans to support you in the future and carry out your wishes effectively.
Developing a comprehensive care and estate plan establishes a framework for organizing your assets and protecting your financial legacy. This proactive approach provides peace of mind and helps to ensure your desires regarding care and estate matters are met.
Step 6: Work with a Financial Advisor
More than one in four adults (27%) across all age groups have not discussed long-term care costs with anyone. That said, 30% would discuss long-term care costs with a financial professional in the future, according to the Nationwide survey.
A financial advisor can be greatly beneficial if you need help navigating long-term care planning. Financial advisors can offer tailored advice based on your unique situation and goals. Your financial advisor will guide you in choosing the right long-term care insurance and aligning your retirement plan with your long-term care needs. They’ll also help you make adjustments as your life situation changes.
At Johnson Wealth and Income Management, our CEO and President, Matthew P. Johnson, has assisted families in Iowa and Southern Minnesota since 1999. His team focuses on crafting comprehensive retirement plans, including long-term care needs. With our support, you can confidently work toward your financial goals and adapt your plan when necessary.
Planning for long-term care in retirement is crucial to ensuring a secure and comfortable future. The decisions (and costs) have never been greater. At Johnson Wealth and Income Management, we’re here to assist you in navigating the complexities of long-term care planning, helping you secure a confident future for you and your loved ones.
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