Don’t have a long-term care plan? You’re not alone.
As people live longer, the retirement population grows and health care costs climb, long-term care is a critical component of family financial planning. Yet, despite a recent U.S. Department of Health and Human Services report that estimates people ages 65 and older have a 70 percent chance of needing long-term care in their lifetime, most people are not putting long-term care plans in place.
This is true for high-net-worth individuals — those with assets over $1 million — as well as people of more modest means. In a recent adviser poll by Key Private Bank, the majority of financial advisers surveyed cite fewer than 25 percent of their high-net-worth clients have long-term care plans in place. In fact, the biggest long-term care challenges my colleagues and I face are convincing clients of the need for advanced planning, and helping them prioritize savings for long-term care costs with other financial goals.
As a financial planner, I often have conversations with clients about the financial risks of aging.
Consider a 2017 study by Genworth Financial that reports the current national median cost of a home health aide at roughly $49,000 annually, assisted living facilities at $45,000, and a private room in a nursing home at $97,000 — with a 5-year anticipated growth rate of 3 percent. Actual costs vary by region; in Westchester County where the 65-and-over population is 16 percent and slightly higher than the national average, costs are closer to $57,000, $62,000 and $156,000 respectively. Many people underestimate the costs of long-term care or think that Medicare or their health insurance will cover everything. That’s often not the case and without proper planning, expenses can quickly eat up life savings. A financial adviser can help you define long-term care preferences, analyze potential costs and create a deliberate financial plan to manage them.
Communicate your long-term wishes
When asked about long-term care preferences, the vast majority of Key Private Bank advisors (96 percent) say their clients’ first choice is to stay at home and remain independent. When that is not possible, moving into an assisted living facility is a close second choice. Most do not want to rely on family or go into a nursing home.
Despite strong preferences, advisors report their clients are not communicating enough to children and family members their wishes and future plans. Over half of advisors (55 percent) said only “some” of their clients are discussing long-term plans with family; two in ten (22 percent) say “hardly any” are doing so.
As difficult as the topic may be, talking through with family potential end-of-life needs and management strategies is crucial for setting expectations, delegating responsibilities and avoiding misunderstandings or surprises. Family financial conversations should also include estate plans and your intentions about the ultimate disposition of your legacy. Be sure to discuss the terms of all your estate planning documents (wills, trusts and deeds, bank and investment accounts, etc.) and any life insurance and annuity policies. You should also discuss who has current authority to act on your behalf under the terms of a power of attorney and health care proxy and any specific instructions you may have.
Start the planning process early
The key to developing the best possible plan for your post-retirement future is to start the process early — most advisers recommend conversations about long-term care at the outset of the client relationship. More robust planning should occur between the ages of 40 and 50. While financial advisers have differing opinions on the best approach for long-term care management (e.g. hybrid and annuity policies versus life insurance contracts with an accelerated death benefit rider, etc.), all agree that the earlier you begin, the better financially prepared you will be when the time comes.
Regardless of when you start, long-term care planning is ongoing. Remember that as life changes, so should your plan. Having regular communications with your advisor and family is the best way to keep your plans up to date and in line with your lifestyle and care wishes.
Gretchen Miller, a senior financial planner at Key Private Bank, helps her clients plan for their financial futures. She can be reached at 203-784-5134 and by email at Gretchen_miller@keybank.com.
This piece is not intended to provide specific tax or legal advice. You should consult your own advisors about your particular situation. Any opinions, projections or recommendations contained herein are subject to change without notice and are not intended as individual investment advice.