“U.S. government statistics say that over 70% of Americans 65 and older will need long-term care at least once in their lives. Yet, only 33% of us understand and acknowledge that we’re likely to need long-term care in the future.”- Robert Cannon
Various studies over the past decade indicate that Americans tend to vastly underestimate their chances of needing long-term care. Ignoring long-term care as a critical component of a stable retirement and income plan will likely lead to the exhaustion of funds in retirement.
In 2021, around fourteen percent of the country is over 65, a number expected to grow to twenty percent by 2050. Pew Research Center recently estimated that 10,000 Americans would turn 65 every day for the next 19 years. As our demographic ages, it brings with it shifts in what is necessary for health and well-being. Long-term care is needed by those unable to take care of basic life tasks that keep them independent. These tasks include things such as cooking meals, dressing, bathing and doing simple errands. No one likes to think a time will come when they will have trouble putting on their clothes or making a pot of soup. However, as our life expectancies increase, Americans need to take long-term care planning more seriously. We should examine our attitudes toward aging and created a realistic vision for what will happen when we can no longer perform the “activities of daily living.”
People don’t understand long-term care.
While there seems to be an endless parade of commercials touting the latest drugs or medical devices, there are very few ads discussing long-term care. Such lack of education is one reason why many Americans forget to include long-term discussions with their financial advisor. Multiple surveys highlight the misguided ideas and misconceptions most retirees and pre-retirees have regarding long-term care.
Here are a few beliefs about long-term care and LTC insurance discovered by researchers that indicate Americans are far from ready to tackle the challenges of getting older.
- 67% of people surveyed feel they won’t need any long-term care at all when they retire.
- Respondents say that they believe family members other than their kids will help them with their long-term care needs.
- 25% of people surveyed believe they will be able to use Medicare to cover long-term care costs. Such misunderstandings about Medicare are problematic. In all but very narrow circumstances, Medicare does not pay for nursing home care.
- Most people don’t understand what long-term insurance is or what it covers.
- A majority of respondents indicated that they lack the resources to pay for any long-term care. One in five people said they would have to pull money from their retirement savings if they required nursing home care.
- Most respondents had no idea of the costs associated with long-term care needs.
- Those who do know about long-term care insurance may not understand the cost of that coverage, the stringent underwriting requirements, and the fact that alternatives exist which might prove cheaper.
Alternatives to traditional long-term care
Although traditional long-term care insurance is still an option for some, pre-retirees and retirees can often find alternatives that may be less expensive and have few underwriting requirements.
For example, short-term care or “convalescent” insurance is an option. Short-term care insurance offers LTC benefits for periods of up to one year. Convalescent coverage can help those who don’t qualify for regular LTC insurance, but this coverage’s short duration means it is only a temporary solution. Critical care/critical illness policies offer coverage for a diagnosis such as cancer or other life-threatening illness. Critical care policies usually are less expensive than traditional LTC and provide lump-sum payments for covered diseases.
Increasingly popular LTC alternatives are annuities with LTC “riders.” Coverage provided by LTC riders differs significantly from that of traditional LTC policies.
However, some annuity products offer more flexible underwriting and potentially tax-free funds to use for long-term care for individuals who may not qualify for regular LTC insurance. The downside of these annuities is that many require large-up front minimum premiums that can be as much as $50,000.
Summary: Americans often misunderstand the need for long-term care planning. However, our aging population means long-term care is an issue that is not going away. The need to plan for long-term care will grow as America grays. Failure to plan for long-term care needs means there will be some painful trade-offs. The good news is that with strategic long-term care planning, increased education, and help from trusted experts, you can avoid having your wealth devastated.
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