In a recent discussion hosted by Mark Gaffney, experts Louis Terrero and Robert Ryerson of New Century Planning Associates tackled an often-overlooked aspect of financial planning: long-term care.
While it may be uncomfortable to think about, the need for long-term care is a reality that affects a significant portion of the American population. Approximately 69% of Americans will require long-term care at some point in their lives—that’s nearly seven out of ten people. Given these staggering numbers, understanding what long-term care is and how to prepare for it becomes crucial for anyone planning their financial future.
What is Long-Term Care?
Long-term care involves a range of services designed to meet the needs of individuals who are unable to perform basic activities of daily living (ADLs). These activities include tasks like bathing, dressing, eating, and moving around. According to Ryerson, the threshold for needing long-term care is when a person is unable to perform two out of six ADLs due to cognitive or physical impairments.
For many, the need for long-term care arises suddenly. Gaffney illustrated this point with a personal story: his father, who had been perfectly healthy, unexpectedly fell and broke his hip, resulting in a need for long-term care. While his father recovered, this story highlights the unpredictable nature of such events—accidents happen, and even the healthiest individuals can find themselves in need of care.
The Costs of Long-Term Care
One of the most sobering aspects of the discussion was the high cost of long-term care, which can range from in-home care, to assisted living facilities, all the way to full-time nursing homes. Ryerson emphasized that these options are expensive no matter where you are in the country, with nursing homes in some areas costing upwards of $10,000 to $12,000 a month. In addition, inflation in the long-term care field has been rising at a rate higher than the general economy for the past 30 years, showing no signs of slowing down.
Non-Financial Consequences
Beyond the financial burden, long-term care can take an emotional and relational toll on families. Terrero discussed the non-financial consequences, which, in many cases, can be even more devastating than the monetary costs. Families may become fractured, with siblings or step-siblings not talking to each other for years due to disagreements over caregiving responsibilities. In blended families, these tensions can escalate even further, with family members accusing each other of favoritism when it comes to caring for a loved one. By planning for long-term care in advance, families can avoid some of these conflicts by having financial arrangements in place, preventing disputes over who should bear the burden.
How to Plan for Long-Term Care
The good news is that there are solutions for preparing financially for long-term care, but it requires careful planning. Ryerson explained that traditional long-term care insurance is a good option, but it comes with some drawbacks. It can be difficult to obtain, premiums can increase over time, and if you don’t end up needing long-term care, all of the money paid to the insurance company stays with them.
A more cost-effective alternative is asset-based planning. This involves taking a portion of your assets—typically, the portion sometimes called "lazy money" that would typically be left to heirs—and allocating it toward a plan that provides tax-free funds for long-term care if the need arises. If the care isn’t needed, the money stays in the family. This approach ensures that assets are protected, whether or not long-term care becomes necessary.
The Importance of Certified Expertise
Finally, both Terrero and Ryerson underscored the importance of working with advisors who are certified in long-term care planning. They themselves hold the Certified in Long-Term Care (CLTC) designation, a credential that not all financial advisors possess. This certification ensures that they have the specialized knowledge to help clients navigate the complexities of long-term care planning, offering peace of mind to those who seek their services.
Conclusion
Long-term care is a topic that many people would rather avoid, but the truth is that it affects most Americans. The financial and emotional costs can be devastating without a plan to cover them. By understanding the available options—whether through traditional insurance or asset-based planning—individuals and families can prepare themselves for the potential need for care and avoid placing unnecessary burdens on their loved ones.
If you're ready to start planning or want to explore your options, the team at New Century Planning Associates, with their CLTC expertise, is ready to guide you through this crucial aspect of retirement planning. As both Ryerson and Terrero emphasized, it’s not fun, but it is important.