Living longer, living smarter

Thinking about long-term care may be difficult, but the UBS Chief Investment Office (CIO) estimates that 85% of couples will use long-term care services in their lifetime. That makes proper planning essential. By understanding long-term care and the financial preparation it requires, you can be better prepared to enjoy life as you age.

What is long-term care?

Long-term care refers to the services that will assist you with your health and living in your later years. This can include help with everyday tasks and medical care. Will you choose to stay at home with live-in help? Or will you opt to stay in an assisted living facility? An effective long-term care plan can account for these later-in-life decisions, as well as unexpected expenses, such as medical care after a fall or illness.

Though your spending will vary depending on your age—whether you’re freshly retired and traveling the world or well into your golden years and looking for at-home care—a good financial plan will anticipate how much money you will need for each life stage.

Do you need a long-term care plan?

Living longer can mean increased health risks, such as cognitive decline. According to Ronald Sutedja, Quantitative Strategist of the Americas, UBS, 37% of people over the age of 85 typically have some kind of mild cognitive impairment and about one-third have dementia. This is why it's crucial to communicate your financial wishes to your loved ones while you are cognitively healthy and able to make the soundest decisions, even if these conversations may be difficult.

“Long-term care should be a top goal and key part of a comprehensive financial strategy,” says Sutedja. “With longevity increasing and healthcare costs rising, it is understandable that even high-net-worth investors are focused on the potential impact of long-term care on their finances."

What affects the cost of long-term care?

Sutedja estimates that today's average 65-year-old will spend roughly USD 184,000 on long-term care. This cost will vary depending on your choices of care. For example, the monthly cost of living in a nursing home can be more than twice that of an assisted-living facility. And, unfortunately, Medicare does not typically pay for long-term care, Sutedja says.

The cost of long-term care also varies greatly depending on where you live. For example, in 2018, the annual median cost of a home health aide in Washington State was USD 64,064, compared to USD 38,896 in Alabama, according to Genworth's "Cost of Care Survey 2018."¹

Long-term care expenses can cause otherwise well-considered financial plans to fail. Sutedja notes that long-term care insurance policies, which help cover the costs associated with long-term care, can help reduce failure rates, though not entirely. UBS analyzed three types of long-term care insurance policies —traditional long-term care insurance policies, hybrid long-term care insurance policies and permanent insurance policies with a long-term care insurance rider—and found that all three help reduce portfolio failure rates. However, due to caps in annual and lifetime coverage, there are no policies that will eliminate the risk entirely.

What should a long-term care checklist include?

When thinking about how to put a plan in place, there are a number of important factors to explore alongside your Financial Advisor:

• Consider where you want to live and how prices vary among states
• Decide various housing options—for example, live-in aid or assisted-living
• Review long-term care insurance policies
• Discuss with your family how your needs will be addressed
• Prepare advance medical directives
• Establish a legacy plan and update your will or trust regularly

By beginning to answer these questions, you can start saving for the life you will want to live and feel more assured that your family is aware of your wishes.

How can I be better prepared?

To account for living longer, many people are opting to retire later in life, which can have a positive impact on one's health.² Research backs the effectiveness of this strategy: According to the National Bureau of Economic Research, delaying retirement by three to six months has the same impact on a retiree’s standard of living as saving an additional 1 percentage point of labor earnings for 30 years.³

According to Sutedja, investment strategies can include longer duration bonds, long-term themes and high-dividend growth equities in the context of a diversified portfolio—all of which can contribute positively to a long-term care plan.

Regardless of the specific long-term care you envision, preparation is essential. It’s never too early to examine your financial strategies, communicate with your family and start planning for life in the future.