Eldercare has increasingly become a topic of interest and concern nationally, at the state level and among families worldwide.
Projections by the United States Census Bureau (USCB) show that around 20% of the U.S. population will be over 65 years old by the year 2030. This is more than a 4% increase from the current ratio within the same age bracket. Eventually these baby boomers, currently helping their parents, will have their own eldercare scenarios.
This growing elderly population presents a need for an increase in eldercare services, which comes at a cost. In addition, advances in medicine have made it such that those who reach retirement age are living longer than ever and will likely require substantial care.
According to the U.S. Department of Health and Human Services, 70% of people turning 65 today are likely to have an eldercare crisis of some kind. On average, such an event is expected to last 3.7 years for women, while males will experience an eldercare circumstance lasting an average of 2.2 years. Shockingly, 20% of all 65-year-olds will have an eldercare event lasting north of five years.
With many retirees worried about outliving their savings under their current state of health, there is a growing concern that federal and state governments will ultimately shoulder this burden. From a financial planning perspective, it’s critical that today’s pre-retirees develop a proactive strategy to handle what could be an extraordinarily expensive phase at the end of their lives.
The essence of eldercare is to help older adults live a comfortable and independent lifestyle. There are different kinds of assisted living for those at home and in facilities. The annual cost of eldercare ranges from $30,000 to $110,000, depending on the type of care and location. Adult day care is the most affordable, with prices around $31,000, while senior living complexes attract the highest costs. New York and Connecticut have some of the highest annual rates, with senior facilities charging anywhere from $120,000 to more than $180,000 on average.
These figures can be frightening to senior citizens grappling with reduced incomes and higher expenses. However, there are ways to help manage the costs, and the earlier you begin planning, the better.
People who have enough savings or regular income from investments, pensions and social security might be able to self-fund their expenses. A certain portion of assets should be earmarked and invested specifically for this possibility for those able to plan for the contingency. Long-term care insurance can be a good financial tool to help cover an array of assisted living options for those who can’t afford to self-insure fully. Long-term care rates have risen dramatically in recent years as claims on existing policies have exceeded all expectations. It’s likely no longer realistic to expect to transfer all risk of an eldercare event to an insurance company affordably.
The market has changed, however, and there has been a proliferation of products that offer hybrid solutions. Life insurance policies with long-term care or chronic illness riders promise that the money paid into the policy will be returned with leverage to the insured or the insured’s beneficiaries. It’s no longer “use it or lose it.”
Other policies allow for a single, onetime lump sum deposit that can either focus on growing cash value with the supplemental benefit of long-term care or focus primarily on a growing long-term care benefit with the promise of the ability to have the premium returned to you should your financial circumstances change.
In our experience, most clients will turn their attention to considering their eldercare strategy at the time of their retirement or at the time of their parents experiencing a crisis. Naturally, this makes sense. But if long-term care insurance is going to be a part of your eldercare strategy, the reality is the premiums can get prohibitive in your 60s – especially for women, who tend to outlive men. While there is no sweet spot, I do encourage clients with the means and the bandwidth to develop an eldercare strategy as early as in their 50s so that they can consider if long-term care insurance should play a role in it or rule it out and set up a plan for future self-insurance.
Many believe that Medicare will cover their eldercare costs. For prolonged chronic eldercare events, Medicare will simply not suffice. Medicaid is the government program that can cover the cost of long-term care in a home or nursing home setting, but it has specific financial eligibility requirements, which vary from state to state. At its most basic, Medicaid was designed to protect people in poverty, so a low income and lack of assets and savings is typically required to access the program.
There are eldercare attorneys and other specialists familiar with strategies and planning devices such as trusts that may allow someone with means to attempt to receive Medicaid. (See related story on Page ?.) These strategies can be effective but often require a significant loss of control that can be a substantial impediment. In addition, as most mass wealth is tied to our residence and our retirement accounts, such planning can be even more complicated and possibly less desirable. Some states have much stricter “look back” rules on these planning techniques than others.
Time is again the most valuable tool here – and conversations about the strategies that may work or should be ruled out for your personal situation should be had early – well before retirement and well before the actual need arises.
Early planning and professional guidance not only make the transition process easier but also can give you peace of mind. The SKG team remains committed to helping you account for this what-if as part of any sound financial planning process.
Chris Kampitsis and Ben Soccodato lead the The SKG Team at Barnum Financial Group, with an office in Elmsford, and conducted a recent webinar on eldercare finance. For more, visit skgbarnum.com.
