This post is the third of a three-part series on retiree healthcare expenses.

Part 1: Drivers of Retiree Healthcare Expenses
Part 2: Understanding Medicare
Part 3: The Long-term Care Dilemma

In this final post of the series, I tackle how you should factor the potential cost of long-term care (LTC) into your overall healthcare expenses.

What is long-term care?

Long-term care (LTC) typically refers to a combination of personal and medical care for anyone who develops memory problems or otherwise requires assistance with the 6 activities of daily living: bathing, eating, dressing, toileting, transferring (e.g., moving from a bed to a chair), and continence.

There are many care settings, ranging from adult day care (lowest level of care) to private room nursing home care (highest level of care). For the sake of simplicity, I am going to focus on the costs of three of the most common care settings: home care, assisted living, and private room nursing home.

1. Home Care

As more and more seniors opt to “age in place,” home care has become an increasingly popular option. With home care, health aides provide service to individuals in their own homes to help with the 6 activities of daily living as well as a range of other services, such as meal preparation, household chores, transportation, and companionship. The care is personalized and can be extensive, but keep in mind it is not medical care.

1. Assisted Living

Assisted living is considered an intermediate level of care. It is a residential arrangement that combines personal care with health/medical services. The level of care is not as extensive as that of a nursing home, but typically there are staff on site round-the-clock to assist in the event of an emergency. Most assisted living facilities offer meals and activities/social events for residents.

1. Nursing Home

A nursing home provides a higher level of supervision and care than an assisted living facility. Nursing homes offer residents personal care assistance, room and board, supervision, medication, therapies and rehabilitation, and on-site nursing care 24 hours a day.

The Cost of LTC

According to Genworth’s annual Cost of Care Survey, here is the annual national average cost for each of the three care settings compared against the cost in several major U.S. cities.

So, for example, if you need a three-year stay in a nursing home in Boston, expect to pay around $486K.

The “LTC Dilemma”

 As I mentioned in my last post, LTC is not covered by Medicare, which means you need to plan for these costs separately! So why is LTC such an under-planned area of personal financial planning? I believe there are a few key reasons:

1. Broad range of outcomes

It is difficult to predict how much or what type of LTC you might need. On the one hand, roughly 30% of people will require little to no LTC. As a result, a lot of people overlook this important area of planning. On the other hand, up to 70% of Americans will need some form of LTC, with men requiring 1.5 years and women requiring 2.5 years on average.

To make matters worse, 13% of people will need care for more than 5 years, quite possibly making their LTC expenses exceed the value of their home.

2. You need to plan early

Just 200 years ago, the average life expectancy was around 40 years old. So, it shouldn’t come as a big surprise that we human beings are not great at taking a decades-long viewpoint when planning for the future. But with LTC, much like retirement planning and tax planning, we have to do just that. I recommend beginning the planning process around age 50. If you wait until your 60s or 70s, you have a much higher likelihood of being completely rejected for LTC insurance, and if you haven’t managed to save up enough on your own then you’ll have very few options left.

3. Requires a frank conversation on an uncomfortable topic

If there’s one thing people want to talk about less than death, it’s spending their final years in a nursing home. This is a topic that most people simply want to brush aside, procrastinate on, or ignore altogether.

4. Reliance on kids

Rather than doing substantive planning, many people take up the mantra of “my kids can help take care of me.” This can be flawed thinking for a few reasons:

• Most people drastically underestimate the time commitment required for caring for someone or even just helping with basic activities (e.g., running errands, providing rides to doctor appointments, delivering groceries)
• 48% of caregivers earn less money at work due to caregiving responsibilities
• 25% of caregivers have to quit work or retire to provide adequate care

Unfortunately, planning to rely on your kids is not planning at all.

The Bottom Line

Planning for LTC is, without a doubt, a very difficult process. It requires you to assess the potential outcomes, plan early, and have frank conversations about your health with family members. To accurately factor in the cost of LTC, you also need to account for various care settings, your location, and a hefty inflation factor.

The reality is, if you’re very wealthy you can likely self-insure the risk of a costly 5+ year nursing home stay. If you’re very poor you can go on Medicaid (and LTC insurance is likely too expensive for you in the first place). For everyone else, this is a relevant planning area that you should not overlook.

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[1] Based on 44 hours per week by 52 weeks
[2] Based on 12 months of care, private, one bedroom
[3] Based on 12 months of care, private, one bedroom