Retirement Planning: The True Cost of Long-Term Care
By Paul K. Doak, CFP
Retirement dreams often include leisurely days, rewarding hobbies, and travel. But what happens when the reality of long-term care expenses disrupts those plans? It’s a conversation many avoid, yet it’s a crucial aspect of retirement planning that shouldn’t be overlooked.
Even with careful financial preparation, the potential need for long-term care—and its staggering costs—can derail even the most well-structured plan.
The Shocking Cost of Long-Term Care
Imagine finally reaching retirement, ready to embrace the years ahead, only to be met with an unexpected financial burden. The cost of long-term care isn’t just a concern—it’s a significant expense that can range from a jaw-dropping $8,000 to $20,000 per month.
At that rate, savings can disappear rapidly, putting stress on both you and your loved ones. However, awareness is the first step toward preparedness. By factoring long-term care into your retirement strategy, you can take proactive steps to preserve your financial stability.
Many people assume they will always remain independent, but the reality is that long-term care often follows a predictable pattern: home healthcare is typically needed first, followed by an increased level of care—such as a graduated care facility. Understanding this progression can help families plan better for future expenses.
This isn’t about fear—it’s about empowerment. If you have a solid plan in place that accounts for the true cost of long-term care, you can feel confident that your golden years won’t be upstaged by unexpected expenses.
Why So Few Americans Have Long-Term Care Insurance
Many people, particularly younger individuals, think they’re immune to the risks associated with aging or chronic illness. They think, “That won’t happen to me,” while envisioning an active retirement full of adventures.
While this optimistic attitude is admirable, it often causes individuals to become naive to the possibility of long-term care, resulting in risky procrastination that could expose them financially.
Ironically, many people resist moving into an assisted living facility, yet research shows that quality of life and longevity tend to improve in these environments. This is often due to the social connections and reduced stress from having meals and housekeeping taken care of. Planning for these realities in advance can help retirees make informed choices instead of facing difficult decisions under pressure.
Additionally, long-term care insurance’s perceived complexity and expense also serve as strong obstacles. Even the most financially literate people can become overwhelmed by the industry’s complicated policies and wide range of coverage options.
It’s easy to understand why many people choose to opt out. Paying premiums for coverage you might never use doesn’t make a lot of sense, but this avoidance strategy can be an expensive gamble.
Without proper coverage, a prolonged illness or disability could wipe out life savings, leaving families to struggle to make ends meet. It’s a risk that begs the question: Is the perceived cost and confusion more important than feeling confident about your retirement needs?
Long-Term Care by the Numbers
To help you better understand the scope of long-term care, here are some key statistics based on research from Morningstar:
70% of people turning age 65 will develop a severe long-term care need in their lifetime.
42.1% of long-term-care services are paid for through Medicaid.
49.1% of nursing home residents have Alzheimer’s or another form of dementia.
It’s also important to note the extreme expense of long-term care—the median cost for a private room in a nursing home per year is $131,583. Understanding these numbers highlights why long-term care planning is critical. Without a plan, the financial and emotional burden can be overwhelming for families.
Alternative Strategies to Fund Long-Term Care
Although traditional long-term care insurance is still important, savvy retirees are exploring other ways to pay for future care needs.
Leveraging life insurance plans with long-term care riders is one compelling strategy. These hybrid products offer two gains: a death benefit for beneficiaries if care isn’t needed, and access to funds for long-term care expenses if it is.
This approach can be especially appealing for individuals who prefer the assurance of a certain payout or who find typical long-term care insurance premiums unaffordable.
Additionally, some people are allocating a portion of their investment portfolio to a specific “long-term care fund.” This involves putting aside a certain amount in liquid, low-risk investments, including high-yield savings accounts or municipal bonds, so it’s readily accessible in the event that care is required.
In the end, developing a thorough long-term care financial plan requires a customized approach, carefully balancing the pros and cons of each option to determine which is the right fit for a given set of circumstances and risk tolerance.
Partner With a Professional
Don’t let the intimidating numbers of long-term care expenses paralyze your retirement planning. You don’t need to figure everything out on your own.
At I.D. Financial, we’re here to create a customized plan that aligns with your individual financial goals, designed to make your dreams a reality in the most effective and efficient manner possible.
Ready to get started? We invite you to schedule a meeting with Paul online. Or call (206) 774-0262 or email paul@id-financial.com.
About Paul
Paul Doak, CFP®, is the founder of I.D. Financial, a financial planning firm based in Bothell, Washington. He provides goals-based wealth planning and tax reduction strategies designed to align with each client’s unique life plans. With over 25 years of financial services experience, Paul is dedicated to simplifying complex financial matters and helping clients navigate life’s transitions with clarity and confidence. His approach begins with listening; as a sounding board for each client’s concerns and goals, he creates personalized strategies that reduce stress and allow them to focus on what matters most. Known for his responsive and educational style, Paul provides a judgment-free zone, focusing on the future rather than dwelling on past financial decisions.
A CERTIFIED FINANCIAL PLANNER® professional and Life Underwriter Training Council Fellow, Paul holds a bachelor’s degree in political science and economics from the University of Southern Maine. Based in Bothell, Washington, with his wife and son, outside of work, he enjoys skiing, reading, woodworking, traveling, fishing and camping with his son, and helping his son with Scouting. To learn more about Paul, connect with him on LinkedIn.