Retirement Watch

Clients need prep for long-term care

Few have planned for such care, but 70% of 65-year-olds will require it in their future

Dec 30, 2015 @ 10:38 am

By Jamie Hopkins

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A recent survey conducted by Lincoln Financial Group, “Managing Long-Term Care Risk,” revealed some surprising reasons why Americans, aged 18 and over, are so unprepared to meet their long-term-care expenditures in retirement. An astonishing 73% of the survey's respondents significantly underestimated the costs associated with long-term care. Perhaps more troubling, only 22% of respondents believed that they would ever need long-term care. In fact, the risk that someone who is presently 65 will need long-term care at some point in their future is closer to 70%.

By underestimating the costs associated with long-term care and the likelihood of eventually needing long-term-care services, Americans will continue to be vastly unprepared for this major retirement risk.

Even the respondents who worked with a financial planner were not adequately informed or prepared for the potential risk of long-term care. Less than 40% of respondents with a financial adviser had ever discussed long-term-care planning with their adviser. While the topic of long-term-care planning can be difficult because it forces individuals to face their own frailty and mortality, it is a crucial conversation to have with clients to plan for a secure retirement.


The long-term-care discussion should be comprehensive, include facts about the risks and costs, and provide clear explanations about the variety of long-term planning options now available.

Remember that long-term-care planning is not just a decision about whether to buy traditional long-term-care insurance or not. There are plenty of other options available. Advisers should be prepared to present the possibilities to clients and their families so together they can formulate a plan tailored to the individual's needs.

While long-term-term care insurance is specifically designed to help fund long-term-care expenditures, it can be very expensive and not everyone can qualify for coverage. However, in the past decade many so-called hybrid products have been developed that combine the benefits of long-term-care insurance with either a life insurance policy or an annuity. These hybrid products can act as a multipurpose utility tool for retirees, providing them with multiple forms of insurance coverage and a degree of flexibility not found in traditional long-term-care insurance.

In addition to insurance, Medicaid can be a primary funding

mechanism for long-term-care ex¬pendi¬tures, but this approach has serious disadvantages. To receive long-term-care coverage under Medicaid, an individual must effectively spend down all of his or her assets before any Medicaid benefits can kick in. Another downside of relying upon Medicaid is that you and your family often give up control of your care. This means you can no longer select exactly where and how you will receive care.

Another strategy used to pay for long-term-care expenditures is self-funding. This strategy puts the majority of the risk directly on your savings, meaning you have to set aside a large amount of money. Additionally, self-funding usually coincides with a heavy reliance on family caregiving. In fact, more than 70% of all long-term-care services are provided by family members, who spend an additional $5,000 out-of-pocket per year on average to provide care. Stress and demanding time schedules can force some family caregivers out of the workplace earlier than planned, often jeopardizing their own retirement security.


This means any planning should at least include family members who might provide funding or caregiving services to make sure they are willing and able to assist if needed. Having a proper plan in place in advance can help alleviate the caregiver burden placed on family members by securing enough resources, whether insurance or otherwise, to help pay for assistance.

Long-term-care planning starts with a serious and well-informed discussion about the risk, and requires a comprehensive review of the potential funding options. If common misunderstandings about the severity and likelihood of long-term-care risk can be replaced with solid facts and realistic choices, American families can begin to take the necessary steps to become better prepared for a more financially secure retirement.

Jamie Hopkins is a professor of tax at the American College's Retirement Income Certified Professional program. Follow him on Twitter @jamiehopkins521.


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