Who will need it and for how long, how much it will cost, the state of the long-term care insurance marketplace, and the toll on caregivers.
If there’s a single unsolved problem in the retirement plans for many middle and upper-middle-income adults, it’s what to do about long-term care costs later in life.
Very high-income, high-net-worth people can plan to self-fund long-term care costs, though I’d advise them to do the math on long-term care cost inflation before getting too comfy with the idea that they’ll have enough to do so. Meanwhile, people without significant financial assets will need to rely on Medicaid-provided long-term care. That’s most people: Medicaid and other government programs cover the majority of the long-term care costs in the U.S.
Sandwiched in the middle are people with some, even significant, financial assets–just not necessarily enough to comfortably fund a $300,000 (or more) long-term care outlay at the end of their lives. For them, the choices are stark and rather unappealing. They could purchase traditional long-term care insurance and risk premium hikes.
Alternatively, they could purchase one of the increasingly popular hybrid life/long-term care products and face an opportunity cost, as discussed here. Or they could forego insurance altogether, planning to self-fund care or use nonportfolio assets, such as a home sale, to cover any long-term care costs.
The best way to make smart decisions is to go into the process armed with the facts. How likely are you to need long-term care and for how long? What does long-term care cost, and what does it cost to insure against it?
Originally published August 20, 2018, on Morningstar.