Preparing for the High Cost of Long-Term Care
Posted on July 27, 2009
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In the recent surveys made by AARP, the findings showed that there is a clear confusion between what most people think long-term care costs and the actual cost of care itself. In fact, after surveying 1,456 people over the age of 45, only one in 12 came within 20% of estimating long-term care costs accurately. Most felt that only $500–1000 a month would do the trick nicely. I find a similar unrealistic outlook when I work with folks and try to help them develop a plan for their long term care needs. Quite often, they are shocked when they see the premium cost for a long-term care policy, especially if they happen to be in their sixties or seventies.
But there are two very important reasons that LTCI costs as much as it does. One is that the costs of care in this industry are rising more than 5% annually on the average, and have continued doing so for several years now. For the most part, average inflationary costs for the rest of the economy averages around 2–3% a year. But that is not the case with health care, especially long-term care. To put those figures into perspective, a 5% inflationary measure means costs double every fifteen years or so. So if facility costs are $150 a day in your area today, in fifteen years they will most likely be around $300 per day. And in fifteen more years, that figure balloons to $600 a day just for assisted care.
The questions that each person must ask themselves about preparing for that kind of expense are whether they have the funds available now to pay for their care, and whether they will have the additional funds needed in the future to make up for the increases caused by inflation? Will those funds be liquid enough to be accessed quickly and without major financial loss to necessary retirement income? Another reason as to why LTCI costs as much as it does is because it is one of the most commonly used forms of insurance that you can buy. In the year 2000, a MetLife Mature Market study revealed that out of 1,000 people age 65 and older, only five will ever lose their home to a fire. So this means that only 70 will ever experience an auto accident that requires them to file a claim on their auto insurance. But in the same age group, 600 will require some form of long-term care. It is very unfortunate when I see so many people working so hard to put away money for their retirement years, and yet not understand the single greatest risk to their retirement income that exists.
I would encourage everyone to take a realistic hard look at the rising costs of continuous care and start as early as possible to prepare to meet the financial challenges ahead. Until next time.
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