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Do You Need a Long-Term Care Plan?

By Peter Keers January 03, 2022 Managing Money

Financial planning for retirement frequently ignores a huge subject area: planning for potential long-term care costs. Studies show that well over half of today’s 60-year-olds will eventually require some sort of long-term care. Yet, only about half of us make specific plans for paying the costs of such care.

In a  survey by The Associated Press NORC Center for Public Affairs Research, 54% of respondents aged 40 and older said they had done little or no long-term care planning.

This presents a problem for many families because annual costs can run into thousands of dollars for long term-care.

Genworth, a prominent long-term care insurance provider, gives the following averages of annual long-term care costs:

Adult Day Health Care$ 19,240
In-Home Health Aide$ 54,912
Assisted Living$ 51,600
Skilled Nursing Facility – Semi-Private Room$ 93,075
Skilled Nursing Facility – Private Room$105,850

These are today’s costs. Genworth research showed costs rose between 1.9% to 3.8% between 2004 and 2020, depending on the care type. Assuming annual increases continue at a 2.5% rate, long-term care will cost twice as much by 2050.

Since there is at least a 50/50 chance of needing expensive long-term care, what are the possible sources of funding to pay for it?

Show Me the Money

Long-term care costs can be covered by:

My Money

According to a 2016 HHS report, the majority (53%) of long-term care expenses are paid from a variety of sources like:

  • Regular savings
  • IRAs and 401(k)s
  • Pensions including Social Security
  • Health savings accounts
  • Proceeds from a home sale
  • Reverse mortgages

With these sources, there is always the risk of running out of funds. Seniors who have low retirement savings and limited assets are particularly vulnerable.

Government Money

When the government pays, its mostly through Medicaid and some Medicare:

  • Medicaid                                                             34%
  • Medicare                                                             10%
  • Other public sources                                        1%

Many people have the mistaken belief that Medicare pays the majority of long-term care costs. Medicare does cover rehabilitation care for up to 100 days after a hospitalization subject to strict requirements. However, most long-term care involves services for older adults who need help with everyday activities. Medicare does not pay for this.

The main source of government funding is Medicaid. However, beneficiaries must have very low income and assets. In many states this can be as low as $2,000 of monthly income and $2,000 in assets. It is common for people to “spend-down” their income and assets to qualify for Medicaid. Also, Medicaid payments typically only cover basic accommodations and services in senior living facilities.

Insurance Money

Insurance pays for only about 3% of long-term care costs. The most well-known product is traditional long-term care insurance (LTCI). There are also life insurance policies and annuity contracts containing long-term care riders.

According to American Association for Long-term Care Insurance (AALTCI) only around 8% of U.S residents 55 or older have some form of LTCI. Why does LTCI account for such a small percent of long-term care money? There are several reasons:

•             High premiums

•             Misconceptions that the government will pay

•             Ignoring the risk of eventually needing long-term care.

Next Steps

No matter where the money comes from, planning for long-term care is critical. As financial writer, Christine Benz, wrote in a September 2021 article:

“The fact that about half of us will need some type of long-term care in our lifetimes and half won’t suggests that we all ought to factor long-term-care planning into our retirement planning. After all, if I told you that there was a roughly 50/50 chance that your house would burn to the ground during the time that you owned it, is there a possibility you would do nothing about it?”

Since this is such an important need, what can you do?

The first step is education. It makes sense to learn about various senior living options and costs before needing care.

Second, search for a certified financial planner experienced in long-term care. This person can act as a trusted advisor in the effort to clarify your goals and craft a plan to meet your objectives.

Prioritizing creation of a long-term care plan will lead to better health decisions and greater peace of mind.

Have you planned for long-term care? If you happen to need it, how will you fund it? Do you have Long Term Care Insurance, or would you draw on savings and other assets?

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The Author

Peter Keers is a writer and video blogger focusing on topics for the over-50 audience. Defining himself as a curious seeker, Peter’s interests range across both the art and the science of living an authentic and fulfilling life in the 21st century. See Peter’s eBooks on travel, long-term care, Medicare and other topics at

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