One of the trickiest parts of retirement planning is knowing whether you'll need long-term care down the road — or how much it might cost.
While not everyone will need such care — help with daily living activities like bathing or dressing — those who do can face a big tab. Medicare — relied on by most retirees — generally doesn't cover long-term care. (Skilled nursing care and rehabilitative services do get limited coverage related to certain hospital stays.)
"It's truly impossible to predict if, when, and for how long you may need long-term care," said certified financial planner Michael Hennessy, founder and CEO of Harbor Crest Wealth Advisors in Fort Lauderdale, Florida. "Costs vary substantially, so it's difficult to carve out the exact amount you may need."
A new online tool can help determine how much you may for LTC services such as a home health aide or nursing home care, based on where you plan to retire. There's a section that allows you input assets and expected retirement income if you want to get an idea of how much of the potential cost could come from income and savings (or you can skip that section).
The tool also explains how much insurance would cost to cover those expenses.
While offered by Saturday Insurance, an online agency that sells such policies, you can use the tool without providing personal identifiers — no name or contact information is necessary unless you choose to input it.
"There may be more unbiased sources, but a lot of times those online calculators really do come in handy," said CFP Doug Boneparth, president of Bone Fide Wealth in New York.
The fine print on the agency's website includes a piece of advice: "We urge you to consult with your financial and tax advisors before making any purchase decisions."
Someone turning 65 today faces a nearly 70% chance of needing LTC services during their remaining years, according to the U.S. Health and Human Services Department. On average, women need care longer (3.7 years) than men (2.2 years).
Monthly costs for LTC can be eye-popping: a median $4,000 for care at an assisted-living facility ($48,000 yearly), $7,500 for a semi-private room in a nursing home ($90,000 a year), $4,400 for a home health aide ($52,800 annually) and $4,300 for homemaker services ($51,600 a year), according to Genworth.
"You have to make some assumptions about the cost and then see how it impacts other areas of your financial plan," said Boneparth.
Some retirees chose to "self-insure" — that is, rely on their own assets — to fund the unpredictable costs related to LTC. That could mean spending retirement savings, getting a reverse mortgage or, say, selling a vacation home. Other options include leaning on family members or spending down (or shielding) assets to qualify for Medicaid-sponsored nursing-home.
The most straightforward solution — LTC insurance — has become too expensive a proposition for many consumers, contributing to a 60% drop in sales from 2012 to 2018, according to the LIMRA LOMA Secure Retirement Institute. With claims exceeding expectations, many insurers also have fled the space.
The average annual LTC premium cost for a 60-year-old couple is $3,400, according to 2019 data from the American Association for Long-Term Care Insurance. The value of benefits when they reach age 85 would be $343,000 each.
Some advisors recommend that clients consider a hybrid policy that combines life insurance with LTC coverage. That can be done through a new purchase or by converting an existing policy — term or whole — to the option.
While the particulars of each policy vary, the idea is that you can tap the death benefit during your lifetime if you need it to pay for LTC. Doing so reduces the amount that your heirs would inherit. Some hybrid options provide LTC coverage beyond the death benefit.
However, you generally need to be insurable — that is, pass medical underwriting — just as with a straight LTC policy.
You also typically need a pot of money to fund it. Some insurers ask for an upfront lump sum, while others allow you to spread the premium payments over a set number of years.
Also be aware that "chronic illness" riders are different from those for LTC. It's contingent upon your condition being permanent. Long-term care riders are less restrictive.
There also are annuities with LTC riders, which promise to pay out a certain amount at a certain point in the future. However, annuities can often come with higher ongoing fees than other investments, and it's another instance where you need a lump sum of money to make the purchase.