Finding long-term care without breaking the bank


Few things are certain in life, although the need for long-term care comes pretty close. Seven out of 10 Americans are likely to need long-term care at some point in their lives, according to government statistics.

Yet most Americans are unaware of those odds. In a recent survey of people age 45 to 64 by PlanBeyond, a website offering financial, health care, and legal advice for the end of life, two-thirds underestimated the likelihood that they would require long-term care. More worrisome, perhaps, was that 33 percent of those age 55 to 64 said they would rely on Medicare to pay for long-term care, even though Medicare generally does not cover those costs.

As a result, many people approaching retirement age are less likely to plan effectively for long-term care, and may wind up putting themselves at financial risk. People age 55 and over accounted for almost 1 in 4 medical bankruptcies in 2013, according to research by Nerdwallet.

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That may be why the most commonly cited source of long-term care is family and loved ones, said Laura Troyani, founder of PlanBeyond. But that comes with a downside.

"It will be some of the better care you are ever going to get, but it does place a huge burden on your loved ones," she said.

Huge is right. Some 43.5 million American adults served as unpaid caregivers over a 12-month period, according to a 2015 report published by the AARP Public Policy Institute. And almost half of family caregivers spend more than $5,000 a year on expenses related to caregiving, a survey found.

It may become harder to turn to family members in the future, though, as people start families later and have fewer children. The mean age when American women now have their first child is 26, up from 25 in 2000.

Going outside the family for care can be punishingly expensive, however. In a pricey city such as New York, a year in a semi-private room in a nursing home can run upwards of $180,000, according to a survey by Genworth. (The cost is lower in a Midwestern state such as Ohio, but the state median of over $76,000 is hardly a bargain.)

Janet and Maggie Ornstein
You'll take care of me when I'm old...right?

The good news is that you have various options to pay for long-term care if you plan ahead.

Perhaps the most obvious way to cover your costs is with long-term care insurance. These policies may pay for everything from occupational therapy to respite care and nursing homes, but they are not cheap.

And the cost of long-term care insurance has been rising as insurers have faced rising life expectancies. Some have stopped writing policies, and that has also fed a rise in prices. The rate for a 55-year-old couple with normal health is about $2,466 per year. For a couple age 60 it's $3,381, according to the American Association for Long Term Care Insurance.

Given those figures, it's not surprising that only about 13 percent of single people buy long-term care insurance.

More insurers offer products to cover long-term care

Another way to pay for long-term care is with a universal life insurance policy. This option will pay you something no matter what happens to you, Troyani said.

"You can draw down on the interest and principal if you need it, but if you don't, you have something left to leave to your heirs," she said. These insurance policies can come with high fees and complicated terms, however, so make sure you understand the fine print.

That warning also applies to annuities, another potential way to pay for long-term care. Various companies offer longevity annuities, which start paying out at age 80 or 85, and can provide income to help cover the cost of care in later life. Another option is a single premium immediate annuity, which as the name suggests, begins paying out immediately — an option that could be especially valuable for people with health issues that might make an immediate income stream more important.

Annuity payments are closely tied to overall interest rates, however. And today, "the interest rates tend to be really, really crummy," Troyani said.

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Barring tremendous medical advances, demand for long-term care is almost certain to rise. The Census Bureau expects the number of Americans aged 65 and older to reach 83.7 million in 2050, from 43.1 million in 2012. But that could conceivably spur more people to plan ahead.

Fidelity has seen a 25 percent increase year over year in the number of people calling with questions about retirement planning, and the discussion often leads to questions of long-term care, said Kathleen Murphy, president of personal investing at the firm. People with assets under $1 million may purchase an annuity to cover some potential long-term care costs if they do not already have long-term care insurance.

"Awareness has grown," Murphy said. And that in itself is the first step toward protecting yourself.