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One of the biggest unknowns for retirees may be whether and to what extent they will need long-term care, that is, help with activities of daily living.
Many people may need less care if they need it, according to a new study from the Center for Retirement Research at Boston College. About 20% of people aged 65 will not need long-term care for the rest of their lives, and one in five people will need only minimal support.
At the same time, however, around 25% will need significant support for more than three years. Studies show that another 38% will fall somewhere in between, requiring a moderate amount of care for one to three years.
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A strong indicator of how much help a person will need? According to the study, whether they are healthy in their late sixties or not.
Plus, being married makes you less likely to need long-term care, research shows. For women, 19% of those who are married will not need it, while 14% are single. For men, no support is needed when married, compared to 17% unmarried.
Experts say the uncertainty of long-term care is a challenge when it comes to planning for retirement. In other words, it can be difficult to figure out how to prepare at an unknown cost.
“There are no right answers, only bad answers,” said certified financial planner David Mendels, director of planning at Creative Financial Concepts in New York City. “So you pick your best wrong answer. “
Health insurance – paid for by most retirees – generally does not cover long-term care. (Specialist nursing and rehabilitation services have limited coverage related to certain hospital stays.)
The monthly cost of such support can be impressive: on average $ 4,300 for assisted-living care ($ 51,600 per year), $ 7,756 for a semi-private room in a nursing home (93,072 $ per year). per year), $ 4,576 for home help ($ 54,912 per year) and $ 4,481 for housekeeping services ($ 53,772 per year), according to Genworth.
“It’s very expensive if you need intensive care in this group,” Mendels said. “But you really don’t know if you will need it, unless you already know that you have major health issues.”
So what are your options? there are many.
Some retirees choose to “self-insure,” that is, rely on their assets, to finance unforeseen costs. This could possibly mean spending retirement savings, getting a reverse mortgage, or, say, selling a vacation home. Other options include relying on family members or spending fewer assets (or protecting) to qualify for Medicaid-sponsored nursing home care.
According to the Secure Retirement Institute, the simplest solution – long-term care insurance – has become a very expensive proposition for many consumers, contributing to a 60% drop in sales from 2012 to 2018. With claims exceeding expectations, many insurers also run out of space.
According to the American Association for Long-Term Care Insurance, the average annual premium cost ranges from $ 2,600 to $ 8,750 for initial benefits of $ 165,000 for a 60-year-old couple, depending on the annual increase in premium. benefit. Or not.
However, according to the association, there is a 50% chance of not needing to resort to insurance.
Some advisers recommend that clients consider a hybrid policy that combines life insurance and long-term care coverage. This can be done through a new purchase or by converting an existing policy – temporary or whole – into an option.
While the details of each policy differ, the idea is that you can collect the death benefit during your lifetime if you have to pay for assistance, although this may reduce the amount your heirs receive. She goes. Some hybrid options offer long term care coverage beyond the death benefit.
However, you generally need to be insurable, that is, have medical underwriting, as with a direct long-term care policy.
You usually also need a pot to fund it. Some insurers require an initial lump sum, while others allow you to spread premium payments over a number of years.