The cost of long-term care

Some calculations to consider—and strategies to pay for it.

06 Aug 2019

Questions you can ask your UBS Financial Advisor

  • How much does long-term care cost?
  • What are the strategies to pay for long-term care?
  • What resources can I go into?

The number of Americans who will need long-term care is expected to double in the next 30 years. According to a recent UBS investor survey, about one-third of wealthy investors now have a parent who needs some kind of assistance. Most investors say they hope to be able to age in their homes and hire care when needed, or move to an assisted living situation if necessary.

Still, the reality of aging—including who will provide care when we’re older and how we will pay for that care—is not a thing most people want to think much about or discuss. The same survey found that the majority of people in their 70s, including those who had health issues, hadn’t talked to their children about their plans for aging or hiring care.

“It can be an uncomfortable conversation to have with family members because there are a lot of emotions involved,” says Ainsley Carbone, Total Wealth Strategist with UBS. Having the conversation well in advance—prior to any illnesses—can make the matter easier to broach. It’s important to have those conversations early for a couple of reasons: One is that planning will help you get the most out of your later years; and secondly, once someone has dementia, the decline in cognitive ability makes it increasingly difficult for them to make their own decisions. Consider getting your plans in order now, Carbone advises, and that includes a plan for care and a plan for how you’ll pay for that care.

How much does long-term care cost?

The short answer to this question is: It varies—a lot.

One thing to understand upfront, however, is that Medicare provides very little coverage in the way of long-term care, Carbone explains. Medicare benefits may cover things like short-term rehabilitation after an illness or injury requiring hospitalization. Additionally, Medicaid may kick in after other financial resources are exhausted—but that is separate from Medicare.

According to US Department of Health and Human Services data, the average cost for a private room in a nursing home is $253/day, or $7,698/month. A one-bedroom unit in an assisted living facility averages $119/day or $3,628/month. The cost varies widely by state.1 For example, a private room in a nursing home costs twice as much in New Jersey as it does in Kansas.2

As for aging at home, the national average cost of a home health aide is about $50,000 per year.3 Full-time nursing care would be more—usually at least as much as a nursing home, if not higher (depending on your needs). If you plan to age at home with a family member providing care, be sure to discuss this with them ahead of time. This can be an incredibly emotional task and financially draining if their care is needed full time.

If your plan is to age in place, you may also need to factor in other expenses, such as making improvements to your home to make it safer and more accessible. Costs such as non-slip flooring may be more minimal (you can purchase slip-resistant rugs for under $100), while replacing a tub with an accessible walk-in shower may cost $1,000 or more. “Your current home may be suitable for you at the beginning of your retirement. But, will that still be the case 20-30 years from now?” Carbone says. Approaching the decision to stay at home with a long-term outlook like this will help you uncover and plan for potential challenges and costs you may face.

Strategies to pay for long-term care

In addition to traditional retirement savings, there may be various resources you can position in your plan now to help pay for long-term care down the road.

  • Savings in a Health Savings Account (HSA): If you have a high-deductible health insurance plan (HDHP), you are eligible to save in an HSA, which offers a triple tax advantage. The money grows, tax free, year after year, and can be distributed tax free when used to cover some long-term care costs. “If you are currently maxing out your 401(k) contributions, do the same with your HSA,” Carbone advises.
  • Using long-term care insurance: If you have long-term care insurance, by all means use it. Many policies have waiting periods and stipulations, so make sure you understand the details of your policy before you buy it (your mid-50s is generally the best time to purchase long-term care insurance).
  • Cashing out life insurance: Your life insurance policy may have benefits you don’t fully realize, such as a long-term care rider (which costs extra). Or, you might be able to get a pre-payment, which is a pay-out of cash ahead of your passing. However, it takes away from the money your beneficiaries would receive on your passing. “Call your provider to figure out your benefits, what the cost would be and what the tradeoffs would be,” Carbone suggests. Insurance policies can be complex but your provider will be able to provide you with the details.
  • Using the equity in your home: “If your mortgage is close to or entirely paid off and you are running low on other assets, consider tapping the equity in your home,” Carbone says. But she cautions that you think carefully about the benefits, costs and potential risks associated with these borrowing facilities—borrowing isn’t right for everyone but, under the right circumstances, it can help families reach favorable outcomes.

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