Heading into retirement is largely a guessing game in terms of how long you’ll live and how much care you’ll need. You can take an educated guess at the first question — most Americans can expect to live just over 20 years after they turn 65 — but the second question is harder to pin down, although a new study suggests that around one in four retirees will require special care for at least three years.
The question then becomes whether you’re willing to bet on being among the lucky three out of four who don’t require special long-term care, or whether you should cover your bases by incorporating long-term care into your retirement savings plan.
Before deciding, it’s useful to know the care needs of other retirees. About one-fifth of 65-year-olds won’t need any care before they die, and a similar percentage will only need minimal care, according to a study released last month by the Center for Retirement Research at Boston College.
Around 25% will have severe enough needs to require “high intensity support for three years or more,” the study found. The largest percentage of retirees (38%) will fall somewhere in the middle, requiring only a moderate amount of care for one to three years.
Your chances of not requiring care are a lot higher if you’re healthy into your late 60s. You also have less likelihood of needing long-term care if you are married, CNBC reported.
Researchers for the study used two decades of biennial surveys of older Americans, as well as data on caregivers, to predict the share of 65-year-olds who will need minimal, moderate or severe care. As the Center for Retirement Research pointed out, this might range from a protracted bout with cancer at age 80 to knee replacement at 65 that requires only a few days of intense home care followed by periodic check-ins.
Assessing whether you should set aside savings for long-term care is not easy.
“There are no good answers, only lousy ones,” CFP David Mendels, director of planning at Creative Financial Concepts in New York, told CNBC. “So you pick your best lousy answer.”
Medicare doesn’t typically cover long-term care, though you might get limited coverage for skilled nursing care and rehabilitative services. If you have reason to believe you’ll eventually need long-term care, be prepared to pay dearly for it. CNBC, citing data from Genworth, reported these median monthly costs:
- $4,300 for care at an assisted-living facility (or $51,600 a year)
- $7,756 for a semi-private room in a nursing home ($93,072 a year)
- $4,576 for a home health aide ($54,912 a year)
- $4,481 for homemaker services ($53,772 a year
There are a few ways to plan for such things. One option is to buy long-term-care insurance, but that can get expensive, with costs usually ranging from $2,600 to $8,750, according to the American Association for Long-Term Care Insurance (there’s also a 50% chance you’ll never need to use the insurance). Hybrid policies that combine life insurance with long-term care coverage are also available, but those aren’t cheap, either.
Another option is to simply rely on your own assets to fund long-term care needs, whether it’s through retirement savings, selling off stocks or other investments, or getting a reverse mortgage. This gives you a little more control over your money because you’re not buying something you might never need.