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Oct 24

What Does Long-Term Care Cost?

A lot, you’re thinking? Sometimes, yes.

That’s a nice way to say we get the “deer in headlights” fear whenever we think about it, so it’s easier not to think about it.

Big mistake. Huge mistake. Better to face the facts and plan for it. It’s amazing to me that extremely intelligent people find it easier to let attorneys make LTC decisions for them by getting them on Medicaid, which still means nursing home care in many states. These are the same people who have spent their entire lives doing whatever it takes to stay in control. They did it by gathering information and making an informed decision.  Planning for long-term care is just like that.

So let’s shine the light on how much long-term care costs.

The cost of a home health aide to help with daily activities such as bathing, dressing, transferring from one place to another in our home and so forth ranges from $16-$30 an hour. Sitters and companions cost less. The latest claims study from the Society of Actuaries says 2/3 of home care claimants are able to stay home the entire duration of care.  The 1/3 that transition out commonly go to an assisted living facility, not a nursing home.  Only 17% of claims start in a nursing home.

Adult day care costs about $68 per day. If you watched the video on my home page about my client Mr. Duckett, I can add to the story that he was able to continue his love of golfing three times a week by taking his precious wife Helen to adult day care while he golfed with his friends.

Assisted living averages a reasonable $3600 a month. Some of these places are gorgeous! Some have the country club look and more importantly, couples can stay together and they don’t charge double for the healthy one. You can have privacy in your own unit, or you can mingle with others. Someone is around to help you when you need it 24 hours a day with the daily activities or with the proverbial “I’m down, but I can’t get up” need. They cook for you, clean for you, do your laundry and there’s no yardwork…what’s not to love? Apparently not a lot.  The latest claims study from the Society of Actuaries for 2000-2011 projects the average duration of care for a woman who needs care longer than a year to be 4.7 years and 3.8 years for men.  This is considerably longer than the last study (1984-2007), and the researcher told me that is largely due to assisted living facility claims.  It goes without saying that people live longer when they are happier. The other great news about assisted living facilities is that 80% of people who go there don’t transition out to a nursing home.

HOWEVER, $3600 a month isn’t the average for a “country-club” assisted living facility. That’s really the median. I usually add $1500 a month to whatever I see in a cost survey, so that brings it to $5,100 a month. Still, compared to the cost of a nursing facility, it is reasonable. A semi-private room in a nursing facility according to the Genworth study averages $6,850 a month and a private room averages $7,700. Here’s an easier snapshot (numbers are rounded to make them easier to grasp):

Home Health Aide: $16-$30/hr. (yes, it’s a wide range, so you need to use the cost surveys to look at YOUR area)
Adult Day Care: $68 per day
Assisted Living Facility:$3,600 per month (add $1,500 for a more upscale facility)
Semi-Private Nursing Facility:
— $225 per day, $6,850/month, $82,000/year
Private Nursing Facility:
— $250 per day, $7,700/month, $92,000/year

But we can’t go just by today’s costs, can we?  Nope.  Inflation rears its ugly head. I still use 5% compound to project future cost of care for assisted living facilities and nursing homes.  Home care is growing slower, so I use 2.5% for that.  I use my favorite compound calculator for this purpose. If I were projecting future cost of a more upscale assisted living facility, for example, I would put $5,100 in the first box on the calculator under Current Principal, zero in the 2nd box for Annual Additions, 30 in the Years to Grow box, and 5% as the Interest Rate. Click Calculate and voila, the answer is $22,041.91…yes, a month.

Now, you can’t buy 5% compound on long-term care insurance policies anymore affordably.  Most companies have priced 3% compound the best. So I usually use that same calculator to determine how much benefit I need to start with to grow it at 3% compound to get to the target in 10, 20 or 30 years…depending on the age of the purchaser and that person’s family longevity.In this case, $9000 a month at 3% compound will grow to $21,845 in 30 years and that’s close enough.  If a single person had income of $6000 a month to put with the monthly benefit, then I can solve for $16,000 a month, which would only take an initial monthly benefit of $6,700 at 3% compound.  This would lower the premium considerably. I say “single person”, because income could still be needed for a spouse or partner. Can you see why it is so important to set up a personal consultation to determine the best way to plan for long-term care? You can do that here.

Now the cost of care varies greatly by geographical area so you will need to see what it is where you live or where you plan to retire. Here are links to two well-known cost of care studies:

Genworth

John Hancock

Numbers don’t mean much until you see how they are used. When one person needs care at $75,000 per year, $500,000 can easily be spent in less than four years.

YearAssets at Start of YearIncome NeedsLTC ExpenseInvestment YieldAssets at End of Year
1$500,000$60,000$75,000$20,000$385,000
2$385,000$61,800$78,800$15,400$259,800
3$259,800$63,700$82,700$10,400$123,800
4$123,800$65,600$86,700$5,000($23,700)
5($23,700)$67,500$91,200($0)($182,460)

Note: “Income Needs” is the portion of household income needs that the assets had been relied upon to provide and assumes annual inflation of 3%. “LTC Expense” is based on a typical annual cost and is subject to 5% annual inflation. “Investment Yield” is assumed at 4% annually after taxes.

Think using a 4% after tax investment yield is too pessimistic?  Here is the same chart using 6%.  Doesn’t look a whole lot better to me. You’re still out of money in less than five years.

YearAssets at Start of YearIncome NeedsLTC ExpenseInvestment YieldAssets at End of Year
1$500,000$60,000$75,000$30,000$395,000
2$395,000$61,800$78,800$23,700$278,000
3$278,000$63,700$82,700$16,700$148,500
4$148,500$65,600$86,700$8,900$5,000
5$5,000$67,500$91,200$300($153,400)

You can explore this website to see various ways that people are finding to pay for long-term care. You will definitely want to explore the LTC Useful Links to find organizations who will help find caregivers. When you’re working full-time with a family of your own, it’s very hard to find the hours it can take to find caregivers, schedule their time and keep everything going to make sure your loved one is safe.

8 comments

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  1. Janice Dee

    I have LTC and I would recommend this to friends and family all the time. I was a federal worker and purchased through the government at a very good rate when I was 44 years old and glad I did. A year later I was diagnosed with an autoimmune disease that may or may not cause disability and require either in-home or nursing home care at a later date. Had I waited, it would have been difficult to obtain the policy I have for $157 per month. I am now 58 years young and doing extremely well and part of it is knowing that should I need LTC, it is there for me. Just like all other insurances, you hope for the best but plan for the worst.

    As always, Suze looks out for us and and I recommend that you look closely at LTC to determine whether it’s a good fit for you. Best wishes to All!

    1. Phyllis Shelton

      Janice, how thoughtful of you to post this comment for all to see. My company actually did the employee education for the Federal government when the plan was launched in 2002. It was a monumental task with our team of 16 people doing 2,020 employee education meetings in 42 states, 210 cities. OPM (Office of Personnel Management) was committed to doing a stellar job of education to teach as many people in the Federal family (civilian, military and postal) how important it is to purchase long-term care insurance, especially at younger ages when we are healthier. Congratulations on not only being one of the thousands who listened and took action by enrolling, but is now passing it on as living proof of the value of acquiring LTC coverage at a young age. And yes, Suze carries the banner as well and is our voice today to keep this essential message going!

  2. Rosalinda Christensen

    I will be 60 in July but my husband and I are on a limited budget. I would like to have long term care insurance for me and my husband but I am worried about the added monthly cost it will add to our already strict budget. Ellen said on her question that the cost to her at 47 was $600+ twice a month. I know how important LTCi is but I am worried about the added expense. Both my husband and I are working full time and our health insurance that we are required to have is so very expensive. But I have seen how expensive it has been for our parents that did not plan for the future that the care and burial expense created a burden on us because the debt of caring for them until they passed on fell on our shoulders, including their burial costs.
    Thank you!

    1. Phyllis Shelton

      Hi Rosalinda – there may be a way we can help you. There are short-term care policies that aren’t as expensive yet can give you some meaningful coverage. Please do complete the questionnaire at https://www.gotltci.com/contact-us/ so we can see if you and your husband appear to be insurable. Please email Lawrence@ltcconsultants.com after you have completed it so he can take a quick look and see if a STC policy might be the answer for you.

  3. Ellen Blazucki

    I read Terry Savage’s column in Sun.
    I have LTC but husband does not. He’s 64 and has several health issues. Can he still get LTC. He’s afraid of costs. I got mine from JHU and pay $600+ twice a year.
    Thank you.

    1. Phyllis Shelton

      Hi Ellen, thanks for your question. We would have to find out more about your husband’s health issues but even if he is not insurable for traditional long-term care insurance, there is an annuity with long-term care benefits for which your husband could qualify. It would also protect the money you put into it from stock market losses while allowing it to grow if the market does well and provide him with a guaranteed lifetime income. If this is something that interests you, please email lawrence@ltcconsultants.com and he will reach out to you for a personal consultation with no obligation to buy anything.

  4. Lisa D Wilson

    I am47, looking for ltc jnsurance. Is it possible and advisable to combine life and ltc together. Trying to get a head of the game

    1. Phyllis Shelton

      Congratulations on taking the very important step to plan for LTC at age 47 Lisa! Yes it is possible to combine life and LTC together if that is in your best interest. I am here for people who don’t have a local professional who is skilled and knowledgeable in planning for long-term care. If you would like me to help you with this, please take a couple of minutes to complete the short questionnaire at https://www.gotltci.com/contact-us/. That gives me some basic information to work with to see how best to help you.

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