A 50-year-old man today has a future life expectancy of around 28 years. For women, that number increases to 32, according to the Actuarial Life Table data collected by the Social Security Administration. As members of Generation X (those born between 1965 and 1980) prepare for the decades ahead, they need to consider the potential circumstances and challenges that could impact their well-being in retirement. Namely, the future need for long-term care.
The longer a person lives, the more likely they are to develop health concerns. In fact, someone who is 65 years old has a 70% chance of needing long-term care in their lifetime.
With some time to think about your potential future care needs, you may want to consider incorporating long-term care strategizing into your greater financial plans. Here are some critical insights and tips for long-term care planning in your 40s and 50s.
Key Takeaways
- Long-term care planning is essential for Gen X due to the rising costs of care and insurance coverage.
- Understanding the scope of long-term care services is crucial for effective planning.
- Despite common misconceptions, Medicare and employer-sponsored insurance do not cover most long-term care costs.
- Financial strategies, including insurance and HSAs, can help manage future care costs.
Understanding Long-Term Care
Long-term care refers to the ongoing care needs a person may have beyond medical treatment and recovery. In most cases, long-term care does not involve medical care, though it may be provided by nurses or facilities with in-house medical care teams.
Those who receive long-term care may need help completing activities of daily living (ADLs), which are the basic personal tasks that, under normal circumstances, an able-bodied person should be able to complete on their own.
These can include:
- Feeding yourself
- Bathing and brushing your teeth
- Getting dressed
- Going to the bathroom
- Moving from the bed to a chair
In addition, there may be instrumental activities of daily living (IADLs) that require more physical or cognitive function than the basic necessities, which some long-term care programs can assist with.
Examples of IADLs include:
- General housework, cleaning, maintenance, and upkeep
- Shopping for groceries and preparing meals
- Caring for pets
- Paying bills and managing the household finances
- Communicating with others over the phone or via email or text
- Handling an emergency
Note:
While the term “long-term care” is often associated with a long-term care insurance policy, it’s actually used to describe any service offering, assistance program, or support an individual can use to address their care needs (in the event they need assistance with ADLs or IADLs).
Types of Long-Term Care
Those seeking long-term care have many options, depending on their specific care needs, timeline, support system, and financial resources.
At-Home Care
Long-term care is often provided in the individual’s home, either by an unpaid caregiver (like a son or daughter) or a home health aide. If a professional is coming to the home, they are typically trained in basic medical care, though it will depend on their job title and general responsibilities.
The annual median cost of a home health aid is $77,792, keeping in mind rates will depend on the responsibilities and hours required.
Community-Based Care
Depending on what’s available in your area, you may be able to find community-based support services, such as an adult care center or a home care agency. An adult care center does require the individual to physically go to the facility, which may be a challenge depending on physical and cognitive ability. However, these types of services can be used to supplement ongoing care or provide some care relief for family members (say the caregiver must go to work during the day and can’t leave the individual home alone for an extended period of time).
While the cost of an adult day center will vary significantly, the annual median cost is around $26,000.
Facility-Based Care
There may come a time when you’re unable to live at home or require continuous care—or perhaps you feel more comfortable moving to a location with access to medical professionals on-site. Facility-based long-term care programs include nursing homes, assisted living facilities, and continuing care retirement communities.
These will typically be the most expensive options, though the cost may be inclusive of care, food, medication, lodging, and more. Facility-based programs vary greatly, and you’ll need to consider what specific factors matter most when deciding on a facility that suits your care requirements and lifestyle needs.
If you’d prefer a private room in a nursing home, the annual median cost is just shy of $128,000. Assisted living communities are a little less expensive at $70,800 annually—though they generally include fewer services and care.
Remember, these costs—much like anything else—are likely to rise over time. By the time the youngest members of Gen X start looking into long-term care, it’s safe to assume prices will have climbed even higher.
Why Gen X Should Plan Now
“Gen X is really seeing firsthand what long-term care can cost as their parents get older. It’s bringing up some serious worries about how quickly assets can disappear, the quality of care available, and whether parents can stay in their homes,” said Jennifer Kirby, managing partner and senior wealth advisor at Talisman Wealth Advisors.
Kirby said that she always urges her Gen X clients to “look at what’s happening and start planning now,” while they still have time to create a strategy that can help cover some potentially significant expenses.
Members of Gen X are often referred to as the sandwich generation, metaphorically stuck between the financial pull of raising a family and caring for aging loved ones. Being in a place where their own priorities are often pushed to the back burner can make it especially challenging for Gen Xers to save for retirement and strategize for their future care needs. But as even the youngest members approach their mid-40s, time is one commodity they can’t earn back. Yet, it’s the tool that makes saving for the future most achievable.
“The risk of delaying long-term care planning is the cost. Waiting to start makes saving for any financial goal harder and more expensive,” said Frank Iozzo, CPWA, founder of FMI Financial.
Health Insurance, Medicare, and Long-Term Care
Perhaps one of the most compelling reasons to start preparing for long-term care? Insurance (almost) never covers it.
Despite common misconceptions, Medicare and private insurers (like the policy you receive through your employer) only cover a limited amount of long-term care services, and none that assist with ADLs or IADLs.
Once you’re enrolled in Medicare, you may be eligible for some skilled services or rehabilitative care, say if you suffer from a severe injury or surgery. These services are offered either at home or in a nursing home, and coverage only lasts for a short period of time (usually 100 days maximum). Most private insurers will offer coverage under similar circumstances.
Again, this coverage is not meant to provide ongoing care, and it is strictly limited to medical recovery and rehabilitation.
Note:
For individuals who meet the income requirements for Medicaid, more long-term care coverage may be available—though the majority of your resources will need to be exhausted before Medicaid kicks in.
Financial Planning for Long-Term Care
“The longer you wait, the tougher long-term care planning becomes,” said Kirby. “Insurance gets more expensive, it’s harder to qualify, and you have less time to save. The sooner you start, the more options you’ll have.”
Some common strategies for addressing long-term care include obtaining a separate long-term care insurance policy, funding a health savings account (HSA), and adding a long-term care rider to an existing life insurance policy.
Long-Term Care Insurance
Depending on your current health status, you may have the option to purchase a separate long-term care insurance policy—either independently or through your employer (if you’re still working).
A long-term care policy will provide the more comprehensive coverage that your traditional Medicare or health insurance policy lacks, though the specifics will vary by provider and policy terms.
Iozzo explained the potential downsides of a long-term care policy, including a lack of availability and affordability: “One of the biggest risks with traditional long-term care insurance policies is premium increases. Insurance companies have historically underestimated their liabilities, and they have passed on their losses to policy owners in the form of premium increases.”
He said there are a few specific factors to look for in a standalone or hybrid policy such as, “Fixed premiums, inflation protection, and guarantee return of premiums (if you no longer want the policy).”
Health Savings Accounts (HSAs)
If you participate in a high-deductible health plan and are eligible to contribute to an HSA, or you’ve been accumulating savings in one for a while now, you may want to consider setting aside the account to self-fund your future long-term care needs.
As a bonus, HSAs offer triple tax advantages:
- Contributions (up to the annual limit) are tax-deductible
- Earnings within the account grow tax-deferred
- Withdrawals used for qualifying medical expenses are tax-free
Once the account holder turns 65, withdrawals are no longer limited to medical expenses. They can be used on anything without incurring penalties, making an HSA an effective tool for building retirement savings as well.
“An HSA is arguably the most powerful account out there because you may never pay taxes,” said Iozzo. “The sooner you contribute and invest to an HSA, the sooner you can have a tax-free balance working for your long-term health needs.”
Life Insurance Long-Term Care Rider
If you have a whole or permanent life insurance policy, you may have the option to add a long-term care rider to your policy. As with any change to insurance coverage, this will impact your monthly premiums and depends on several factors including your age and health history.
“If you have cash value and a history of good health, it might be worth researching if you can use that cash value to pay for the rider or a new policy with a long-term care rider,” said Iozzo. “Depending on the cash value amount, it can help keep the premiums within your budget or even reduce them.”
What Are the Latest Trends in Long-Term Care Services that Gen X Should Be Aware Of?
Options for covering long-term care costs are changing, especially as the cost of care continues to rise.
“Depending on the type of service, the cost of care has increased between 3% and 10% in the past year, and the cost of long-term care insurance coverage has increased as well,” said Steve Pedicini, senior wealth advisor of AlphaCore Wealth Advisory. “Many people already covered by insurance have received notices with options to either accept increased premiums for the same level of coverage or decreased coverage.”
How Can Gen X Balance Current Financial Obligations With Saving for Long-Term Care?
The key to addressing your future long-term care needs is to think proactively and use the time you have now to plan ahead. The sooner you can start building a long-term care fund (perhaps in an HSA or other tax-advantaged account) or obtain a policy, the more impactful your actions will be on your long-term financial well-being. For example, a policy that costs you $400 a month to obtain in your 40s will cost you more once you hit your 50s or 60s (or following a new diagnosis).
What Are the Tax Implications of Using HSAs for Long-Term Care?
The funds from an HSA can be withdrawn tax-free prior to age 65 as long as they’re used to cover qualified medical expenses. You may use your HSA withdrawals to cover long-term care insurance premiums (though there are monthly limits), as well as qualified long-term care services. To qualify, the care must be required by someone who is chronically ill and prescribed by a licensed health care provider.
The Bottom Line
There’s a statistical likelihood you (or your partner) will require some level of long-term care in the future. Exactly when—and for how long—however, are both unknown factors, which makes planning and preparing now all the more important.
Taking simple steps like padding your savings account or obtaining a policy while you’re still in good health can help ease the long-term financial burden. Having a financial safety net for your future care needs can create some much-needed peace of mind as you approach retirement.
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