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The Looming Eldercare Crisis

The Looming Eldercare Crisis

| April 30, 2024

Projections by the United States Census Bureau (USCB) show that around 20% of the US population will be over 65 years old by the year 2030. This is more than a 4% increase from the current ratio within the same age bracket.

The growing elderly population presents a need for an increase in eldercare services, which comes at a cost.  In addition, advances in medicine have made it such that those who reach retirement age are living longer than ever and will likely require substantial care. 

According to the U.S. Department of Health and Human Services, 70% of people turning age 65 today are likely to have an eldercare event of some kind. For women, on average, such an event is expected to last 3.7 years while males will experience an eldercare circumstance lasting an average of 2.2 years. Shockingly 20% of all 65-year-olds will have an eldercare event lasting north of five years!

With many retirees worried about outliving their savings under their current state of health, there is a growing concern that federal and state governments will ultimately shoulder this burden. From a financial planning perspective, it’s critical that today’s pre-retirees develop a proactive strategy to handle what could be an extraordinary expensive phase at the end of their lives.

Understanding Eldercare Needs

The essence of eldercare is to help older adults live a comfortable and independent lifestyle. There are different kinds of care available for older adults; some include:

Home care: This is the most ideal and effective strategy because there is familiarity with the environment. The caregiver attends to the individual while they’re at their home. There are live-in or part-time caregivers, depending on the needs of the older adult.

Assisted Living: For elders who need assistance with daily activities like personal hygiene, cooking, taking medication, and dressing, this is the most common eldercare method. The elder will reside in a facility, where they have their own apartment. Meals and caregiver services are part of the fee to live the facility. The caregiver helps to keep the person company and assist in day-to-day activities.

Nursing home:  This option is especially for those who need a higher level of care and cannot live independently.

Financial Considerations

The annual cost of eldercare ranges between $30,000 and $110,000 annually, depending on the type of care and location. Adult day-care is the most affordable, with prices around $31,000, while nursing homes attract the highest costs. Connecticut has some of the highest rates, with nursing homes charging over $180,000 annual average.

These figures can be frightening to senior citizens grappling with reduced income and higher expenses. There are ways to help manage the costs and the earlier you begin planning, the better.

Strategies for Managing Eldercare Expenses

Self-Insurance

People who have enough savings or regular income from investments, pensions, and social security might be able to self-fund their expenses. A certain portion of assets should be earmarked and invested specifically for this possibility for those able to plan for the contingency.

Long-Term Care

Long-Term Care Insurance (LTCI) can be a good financial tool to cover assisted living, nursing homes, adult day-care, home health care, and personal care expenses for those who can’t afford to fully self-insure.

LTCI rates have risen dramatically in recent years as claims rates on existing policies have exceeded all expectations. It’s likely no longer realistic to expect to completely transfer all risk of an eldercare event to an insurance company affordably. 

The market has changed however and there has been a proliferation of products that offer hybrid solutions. Life insurance policies with long-term care or chronic illness riders promise that the money paid into the policy will be returned with leverage to the insured or the insured’s beneficiaries. It wasn’t “use it or lose it”.

Other policies allow for a single, one-time lump sum deposit that can either focus on growing cash value with the supplemental benefit of long-term care or focus primarily on a growing long-term care benefit with the promise of the ability to have the premium returned to you should your financial circumstances change. 

When To Consider

In my experience most clients will turn their attention to considering their eldercare strategy at the time of their retirement or at the time of their parent experiencing such a crisis. Naturally, this makes sense.

If LTCI is going to be a part of your eldercare strategy the reality is the premiums can get very prohibitive in your 60’s — especially for women who tend to outlive men. While there is no sweet spot, I do encourage clients with the means and the bandwidth to develop an eldercare strategy as early as in their 50’s so that they can consider if long-term care insurance should play a role in it or rule it out and setup a plan for future self-insurance.

Medicare and Medicaid

Many believe that Medicare will cover their eldercare costs. For prolonged chronic eldercare events Medicare will simply not suffice. Medicaid is the government program that can cover the cost of long-term care in a home or nursing home setting, but it has specific financial eligibility requirements, which vary from state to state. At its most basic, Medicaid was designed to protect people in poverty, so a low income and lack of assets and savings is typically required to access the program.

Eldercare Attorneys

There are eldercare attorneys and other specialists familiar with strategies and planning devices such as trusts that may allow someone with means to attempt to receive Medicaid. These strategies can be very effective but often require a significant loss of control that can be a substantial impediment. In addition, as most mass affluent wealth is tied to our residence and our retirement accounts, such planning can be even more complicated and possibly less desirable. Some states have much stricter “look back” rules on these planning techniques than others.

Time is again the most valuable tool here — and conversations about the strategies that may work or should be ruled out for your personal situation should be had early — well before retirement and well before the actual need arises.

Resources and Support

  1. gov: provides a range of services and supports you may require for personal care.
  2. Eldercare Locator: a public service of the U.S. Administration on Aging that connects individuals to resources and services for older adults and their families.
  3. State Health Insurance Assistance Programs (SHIP): provides insurance advice to Medicare beneficiaries, their families, friends, and caregivers.

Conclusion

The US population continues to age, creating a need for proper long-term care and eldercare planning. It’s advisable to understand the different types of care available and their financial implications.

Early planning and professional guidance not only make the transition process easier but also can give you peace of mind. The SKG team remains committed to helping you account for this what-if as part of any sound financial planning process.

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