Long-term care likely won’t bankrupt your clients, but planning is key

One of the biggest fears of retirees is that the healthcare costs associated with long-term care will drain their savings.

New research by T. Rowe Price reveals that 65% of retirees are concerned about the cost of long-term care and services such as nursing homes, assisted care and home health care, and 51% are concerned about direct health care costs.

This is not surprising given that the median annual cost of a semi-private room in a nursing home exceeds $ 90,000 and the median assisted living costs are now approaching $ 50,000 per year. .

“With that in mind, fear of these unknown costs could have an effect on the spending habits of retirees,” the research report says. “Other research on retiree spending shows that many retirees spend their money wisely. In particular, those with higher assets tend to spend less at a slower pace.

“This behavior is likely driven by uncertainty on many fronts, such as market risk, longevity risk, and the future cost of medical and long-term care. It’s more about fearing the storm of the century than a rainy day, ”he explained.

The research highlighted three key ideas:

1. The likelihood that health care costs in the last two years of a person’s life will inevitably drain their finances in retirement is low, although the concern is undoubtedly real.
2. Among retirees who do not receive Medicaid, almost half have no nursing home costs in their last two years of life. Even after age 90, there is less than a 10% chance that health care costs will deplete their assets.
3. When planning for end-of-life health care spending, costs should be weighed against insurance preference, family or facility-provided care, and whether there is a strong desire to preservation of assets or legacies.

While the numbers suggest that healthcare spending in the last two years of life is unlikely to deplete the assets of non-Medicaid people, this possibility cannot be completely ruled out. Therefore, it is necessary to plan.

“It has to be determined whether they have enough money to self-insure or whether a better option is to purchase long-term care insurance (LTCI) or a hybrid product that can offer both long-term care coverage. long lasting benefit, ”the report says. “Another consideration may be to purchase a product designed specifically to provide income in subsequent years, such as a deferred income annuity. “