should i consider long-term care when planning my estate?
There are situations where it is more obvious that long-term care needs to be on the table for discussion while estate planning. If one is more advanced in age and has received an adverse health diagnosis or has a condition that will only worsen over time, those are situations where long-term care planning should be considered. But let’s talk about long-term care in very general terms.
Say I am a healthy person with no family history of any particular disease. I’m in my mid-fifties and plan to retire within the next 10 years. I will have about $1 million in retirement assets and I have no significant debt. I’m set, right? Maybe not.
Most People will Need At Least Some Long-Term Care
LongTermCare.gov is a site maintained by the U.S. Department of Health and Human Services. This CBS article references a report on this site which says almost 70% of Americans over age 65 will need some form of long-term care.
If that statistic isn’t bleak enough, the CBS article goes on to explain that Medicare and even the maximum Social Security benefit won’t cover the cost. For those among us who are fortunate enough to have family members that are willing to provide care in old age, the article rightly points out that family may not be professionally equipped much less financially able to provide unpaid care.
According to CDC data from 2021 the average life expectancy from birth is around 76 years, and for folks already age 65 you can expect to make it to around age 83.
CDC data also listed the top 10 causes of death for 2021. From highest to lowest causes were: heart disease, cancer, Covid-19, unintentional injuries, stroke, chronic lower respiratory diseases, Alzheimer’s, diabetes, chronic liver disease/cirrhosis and kidney disease. These top 10 represent about 75% of deaths. Of that 75%, accidental injuries only accounted for 6.5% of deaths. So the data from 2021 suggests almost 70% of deaths were the result of some sort of disease.
We all know Care is Not Cheap
The cost of care can be wildly different depending on the type of care needed and where one lives. This CBS article says that average costs can range from $54,000 to $108,408 annually depending on where care is provided and the intensity of care needed.
So what does this mean?
Let’s go back to my hypothetical example, and we’ll fast forward in time. I’m now 68, I retired the previous year with $1.25 million in retirement. I don’t know it yet, but I’ll live until I’m 81. The last two years of my life I will need long term care, first at an assisted living facility for about 8 months and the remainder at a skilled nursing home because I had acute kidney failure. The cost of my care in an assisted living facility could cost around $36,000, and my time in a skilled nursing home could cost around $126,528. With my nest egg, I should be fine, right?
According to a report from the U.S. Bureau of Labor Statistics the annual cost of living in America based on 2022 data was $72,967. This means if the cost of living remains stable for the 11 years I have until I enter an assisted living facility, I will have consumed about $802,637 of my nest egg. If you add the cost of my assisted living care for the last two years of my life, I will have consumed approximately $965,165 of my nest egg.
An over-simplified Example, But Still Useful
Obviously, this is a grossly over-simplified calculation. I don’t claim to have expertise in statistical analysis or financial planning. For example, this doesn’t account for any income generated by my hypothetical nest egg while I’m retired, or the fact that my cost of living may be significantly lower than the average. There are numerous variables that could change the numbers.
But I am a middle-aged American with my own family, and my own medical history. Like many other people I want to be able to enjoy retirement and not worry about how I will cover the cost of living and the cost of any care I might need. I don’t want the first time I wrap my brain around the cost of care to be when I actually need it.
The Takeaway
Even if you have a significant amount of money saved for retirement, it’s a good idea to factor in the possibility of long-term care. It’s always a good idea to consider contingency plans if things go a little sideways.