Last week in It?s High Time to Roll Out the Alt-Retirement Movement the comment thread took us in an unexpected direction. It often does. It brought us right to a very difficult retirement related topic: the long-term care dilemma.
We can make all the plans we want as to how we?d like to retire or semi-retire. We can plan to continue working, to save money, and to lower expenses. But if you have a major health event, or you simply live long enough, you?ll come to a time when you can?t live on your own. That?s when circumstances go from complicated to really complicated.
I?d like to say that there?s an easy workaround, but there isn?t. There are alternatives, but none of them are as good as being able to move into a high quality senior living center. But develop workarounds, we must. As lifespans increase, and as retirement resources become increasingly strained, many of us will face the long-term care dilemma at some point in the future.
Why Long-term Care Becomes Necessary
It may be possible to live independently throughout your 70s and 80s. But many people are now living into their 90s. There are two problems with living an extremely long life:
- The likelihood of losing your spouse is very high, and
- You?re very likely to develop chronic health conditions.
With regard to the death of a spouse, it can be tough enough for two elderly people living together. But it will be infinitely more difficult to live alone in extremely advanced age.
The second problem is no less threatening. The National Council on Aging (NCOA) reports that 80% of people over 65 have at least one chronic illness, and 68% have two or more. Chronic illnesses can include conditions such as heart disease, diabetes, COPD and Alzheimer?s disease. Now the number may be somewhat inflated, because it also includes more common and highly survivable conditions, such as arthritis, hypertension, and high cholesterol ? conditions that are not exclusive to seniors.
When you combine the death of a spouse with one or more chronic illnesses, it creates the necessity for some type of senior living arrangement. This doesn?t necessarily mean a nursing home. It could also mean assisted-living, or simply a residence at a complex that’s specifically tailored to the needs of seniors.
As the senior population the US continues to grow much faster than the general population over the next three decades, the demand for senior living arrangements will only grow.
The Long-term Care Dilemma for the Masses: Cost
It?s easy enough to see how the demand for senior living facilities will increase. But perhaps the bigger problem is the cost. The two are related. As the demand for senior living facilities grows, the price increases. It?s cost prohibitive now, but it will only be more so in the future.
It?s hard to get a precise cost on senior living facilities. Part of that is due to the fact that there are different kinds of facilities. There’s also a wide variation in costs from one region or city to another.
But here are some numbers I was able to cobble together from the website Senior Homes.com. Keep in mind that the statistics are from 2015, so they?re likely higher now. But these will serve as a ballpark to emphasize the prohibitive cost factor.
The costs look like this:
- Independent living facilities: average of between $1,399 and $4,002 per month, depending on which state you live in.
- Assisted living facilities: average of between $3,010 and $5,745 per month, depending on which state you live in.
- Nursing homes: average of between $165 and $711 per day, depending on which state you live in.
- Third party at-home care: average of between $150 and $375 per day, depending on which state you live in
Now here?s the really bad news: Back in 1950, it cost just $700 per year for a person to stay in a nursing home. By 1969, the cost had risen to $5,300. Today, it can cost more than $60,000 in the least expensive state, and more than a quarter-million dollars in the most expensive.
It seems destined only get more expensive going forward.
Dealing With the Cost of Long-term Care
When we?re talking about long-term care costs, we’re talking about hundreds of thousands of dollars. If you?re in an assisted living facility at $5,000 per month ? $60,000 per year ? the total cost will be $600,000 over 10 years. Very few people will be able to pay that kind of money out of current income, especially retirement income.
If you?re concerned about long-term care, there are two basic ways to prepare for the cost. The first is long-term care insurance, and the second is building up a very large savings cushion.
Long-term Care Insurance
AARP?s Understanding Long-Term Care Insurance provides an excellent discussion of the nuances of long-term care insurance. It?s worth a read if you?re considering getting the coverage.
Here?s a summary of the highlights of the article points:
- Waiting periods. Up to 100 days in care before benefits begin. If the cost of care is $200 per day with a 100 day waiting period, you?ll pay $20,000 out-of-pocket.
- Pre-existing conditions. Coverage may not begin on a pre-existing condition until after an extended waiting period.
- Different types of coverage. A policy may only be good for nursing home coverage. If you only need assisted-living or home care, it may not be covered.
- Policy limits. An LTC policy isn?t open-ended. Limits will include a per day reimbursement, a time limit (commonly three years), or a maximum lifetime benefit.
- Coverage exclusions. These can include Alzheimer?s, heart disease, and certain types of cancer.
- Premium increases. Insurers can?t raise premiums on your policy due to age or health condition. But they do increase premiums across the board.
- Inflation protection. A common option on LTC policies. Will cost extra, but well worth the price.
- Premium cost. The average annual premium is about $1,500 for a single 55-year-old, and $3,000 for a 60-year-old couple. It rises with age of application.
There?s one BIG disadvantage with LTC policies. Due to spiraling costs and the difficulty in making accurate estimates of future benefit payments, many insurance companies are withdrawing from the market or failing. Should that happen with the issuer of your policy, you?ll end up with no coverage.
Also, if you take a policy at 60, stop making payments at 75, and need care at 80, the coverage won?t apply.
In either case, many thousands in premium payments will be lost.
Saving up to Pay for Long-term Care
Saving money for long-term care is self-insuring. That?s to say that you?ll have all the concerns and limitations that insurance companies have. There?s no way to know what level of care you?ll need ? at-home, assisted living, or a nursing home. There?s also no way to adequately estimate what the cost of the services will be in the future. As it is for insurance companies, preparing for long-term care is an actuarial nightmare!
If you?re saving up a large amount of money for retirement anyway, this could also address long-term care. But there are some complications.
- If interest rates remain low well into the future, you may draw down your retirement savings principal early. When the time comes that you need long-term care, funds may be very limited.
- If you have a spouse or other dependent(s), who are also relying on your retirement savings, you might drain it for long-term care costs. The spouse or dependent(s) could be left broke.
- Even a very large retirement portfolio can be drained completely with a long-term stay.
- While you might have enough to cover the cost of long-term care, you?ll still have other expenses. These will include medical insurance, healthcare costs, and other living expenses.
- The need to get higher returns on your savings could cause you to take on high risk. But a stock market crash can drain a retirement plan a lot faster than long-term care costs.
If you have several hundred thousand dollars saved for retirement, you?ll be covered if you?re only in a facility for two or three years. The problems will develop if you need care for several years.
Then there?s also the potential that both spouses will need long-term care. That?s a nightmare scenario, so we won?t even go there.
Lining Up Long-term Care Alternatives ? A Necessary Alt-Retirement Strategy
Okay, now we come to the main purpose of this article. If you?re in the top 10% of households by income or wealth or both, none of this applies to you. It?s likely that you?ll be able to afford both long-term care insurance and a very large retirement portfolio. This section is dedicated to the 90% of Americans who probably won?t be able to afford either.
As I said at the outset, there are no easy solutions when it comes to long-term care. It?s likely that the vast majority will never need it. But the percentage who will is high enough that we all need to be concerned.
There?s one more variable? With the rapid rise in the elderly population, as well as the relentless escalation of healthcare costs, the cost of long-term care may eventually overwhelm the ability of both insurance companies and individuals to pay. It?s entirely possible that only the very wealthy will be able to afford it a decade from now.
With that in mind, let?s take a stab at alternatives to address the long-term care dilemma.
Take Increasingly Good Care of Your Mind and Body from Now On
This one may be so self-evident that it isn?t worth mentioning. But while not all of the diseases and conditions associated with old age can be prevented, some can be. It?s vitally important that this be approached holistically.
Even if you?ve never done so up to this point, have a complete physical exam, and find out what?s going on inside. Some health conditions can be headed off, and others can be minimized. Proactively participate in any treatment regimen recommended. And even if all is good, start exercising regularly, and adopting a healthy diet.
Also take good care of your mind. Part of the reason why I often recommend planning some sort of post-retirement career is so that we stay active and engaged in life. This is more important than most people generally assume. Our work is part of who we are, and certainly what we do. There are consequences to stopping.
Apart from work, do your best to stay engaged with the world around you. Maintain active personal relationships and social contacts. Continue to educate yourself throughout life. Pick subjects, skills and hobbies, and focus on learning them at different times after you retire. An active mind is a healthy mind.
Expand your spiritual horizons as well. It?s easy to deny faith when we’re young, healthy and self-sufficient. But as we age, all those qualities erode. In my own life, I find that I have a healthier attitude and a better outlook ? particularly in the midst of crisis ? when I realize that God is always with me. Call it a fantasy, but we all need to know that we?re not alone, no matter what. And we aren?t, but we have to seize that baton.
In its own way, each will contribute to better overall health.
Investigate Local Options
Many communities offer senior housing. It?s usually available to local residents only, but it?s offered at a reduced rate. It?s common for rent to be based on a percentage of retirement income. For example, if you have Social Security income of $2,000 per month, and senior housing requires 25% of income, your rent will be $500 per month.
This isn?t the same as assisted-living, and certainly not nursing home care. But many of these facilities do offer limited senior services. That can include access to meal preparation, housecleaning, transportation and connections with senior-related organizations.
I?ve known a number of people who have moved into senior housing, including extended family members. In general, they seem to be content with the arrangement. It?s never luxury housing, but it keeps you in your home community, and is frequently located close to public services, like shopping, transportation, municipal offices, and houses of worship.
I suspect this will be a growing trend in the future, as more of the elderly are shut out of formal long-term care facilities. But that also means there are often waiting lists to get in. If you even think you might go this route, get on a waiting list now. I?ve heard of waiting lists as long as 10 years, so it?s never too early to start.
Consider Communal Living Arrangements
We see ourselves as rugged individualists, who deserve to have our own space. But the reality is that once you reach a point where you can no longer live independently, you won?t be able to have your own space at all. This is the way it needs to be.
If it?s not likely that you?ll be able to afford formal long-term care, you’ll have no choice but to seek alternatives. This is mostly about lining up communal living arrangements. A lot of people are already familiar with this from earlier in life. There?s a good chance that when you were in your late teens or 20s you had one or more roommates. That?s the basic idea.
There are different ways you could replicate this in old age. It mostly applies to singles, but it could be necessary for couples as well. Many people are forced into assisted living situations simply because they can no longer perform the tasks of independent living, and not because of specific health conditions.
Here are some thoughts in that direction:
- Bring in a boarder who will provide services like housecleaning, shopping and cooking, in lieu of rent.
- Move in with family. This can mean moving into their home, or having them move into yours. It usually involves living with your children, but it can also include siblings or close friends. This is similar to what many people did before World War II. More than anything, it?s about shared household responsibilities, as well as having others around in an emergency. It can also lower the cost of housing.
- Get a roommate. This is similar to what you might have done earlier in life. But it will also offer shared household responsibilities and expenses, as well as having another person around in an emergency.
Stay on Top of Future Developments
Life in the 21st century seems to be on an accelerated course. There are three things that we know for sure:
- The elderly population is rising
- The cost of long-term care is rising
- The economy is far less predictable than it used to be
For those reasons, we need to be attuned to new developments. This is only a prediction, but one that I think is coming by necessity. I expect we?ll see the development of small-scale communal housing for seniors.
Groups of seniors may band together and move into a large house that?s owned by one of them. They may also purchase a house as a group or even move into a rental. The basic idea will be shared expenses and responsibilities. They will also be able to look after each other, creating a kind of geriatric synergy.
That?s just one example of what I think could be coming in just a few years. Actively investigate trends on this front. The solution to your long-term care problem could be out there waiting to be discovered. The Internet makes it so much easier.
Look for local solutions that may already be happening. But also investigate bigger picture trends. You may be the person who brings an innovative concept to your community. In a world where people no longer talk with their neighbors, I?ve learned that the Internet is the place to make things happen. Get into forums and chat rooms on the subject and see what comes up. There may be nothing right now, but as the saying goes, necessity is the mother of invention.
Given the right combination of circumstances ? and a sufficient amount of discomfort ? people will usually find solutions to their biggest problems.
Final Thoughts on the Long-term Care Dilemma
All right, I confess that I?ve thrown a few darts in this article. But this is a huge problem that defies easy solutions.
What are your thoughts on the long-term care dilemma? Do you have any loose strategies that you can share with others?