What Does Long-Term Care Cost?

A lot, you’re thinking? Sometimes, yes.

That’s a nice way to say we get the “deer in headlights” fear whenever we think about it, so it’s easier not to think about it.

Big mistake. Huge mistake. Better to face the facts and plan for it. It’s amazing to me that extremely intelligent people find it easier to let attorneys make LTC decisions for them by getting them on Medicaid, which still means nursing home care in many states. These are the same people who have spent their entire lives doing whatever it takes to stay in control. They did it by gathering information and making an informed decision.  Planning for long-term care is just like that.

So let’s shine the light on how much long-term care costs.

The cost of a home health aide to help with daily activities such as bathing, dressing, transferring from one place to another in our home and so forth ranges from $16-$30 an hour. Sitters and companions cost less. The latest claims study from the Society of Actuaries says 2/3 of home care claimants are able to stay home the entire duration of care.  The 1/3 that transition out commonly go to an assisted living facility, not a nursing home.  Only 17% of claims start in a nursing home.

Adult day care costs about $68 per day. If you watched the video on my home page about my client Mr. Duckett, I can add to the story that he was able to continue his love of golfing three times a week by taking his precious wife Helen to adult day care while he golfed with his friends.

Assisted living averages a reasonable $3600 a month. Some of these places are gorgeous! Some have the country club look and more importantly, couples can stay together and they don’t charge double for the healthy one. You can have privacy in your own unit, or you can mingle with others. Someone is around to help you when you need it 24 hours a day with the daily activities or with the proverbial “I’m down, but I can’t get up” need. They cook for you, clean for you, do your laundry and there’s no yardwork…what’s not to love? Apparently not a lot.  The latest claims study from the Society of Actuaries for 2000-2011 projects the average duration of care for a woman who needs care longer than a year to be 4.7 years and 3.8 years for men.  This is considerably longer than the last study (1984-2007), and the researcher told me that is largely due to assisted living facility claims.  It goes without saying that people live longer when they are happier. The other great news about assisted living facilities is that 80% of people who go there don’t transition out to a nursing home.

HOWEVER, $3600 a month isn’t the average for a “country-club” assisted living facility. That’s really the median. I usually add $1500 a month to whatever I see in a cost survey, so that brings it to $5,100 a month. Still, compared to the cost of a nursing facility, it is reasonable. A semi-private room in a nursing facility according to the Genworth study averages $6,850 a month and a private room averages $7,700. Here’s an easier snapshot (numbers are rounded to make them easier to grasp):

Home Health Aide: $16-$30/hr. (yes, it’s a wide range, so you need to use the cost surveys to look at YOUR area)
Adult Day Care: $68 per day
Assisted Living Facility:$3,600 per month (add $1,500 for a more upscale facility)
Semi-Private Nursing Facility:
— $225 per day, $6,850/month, $82,000/year
Private Nursing Facility:
— $250 per day, $7,700/month, $92,000/year

But we can’t go just by today’s costs, can we?  Nope.  Inflation rears its ugly head. I still use 5% compound to project future cost of care for assisted living facilities and nursing homes.  Home care is growing slower, so I use 2.5% for that.  I use my favorite compound calculator for this purpose. If I were projecting future cost of a more upscale assisted living facility, for example, I would put $5,100 in the first box on the calculator under Current Principal, zero in the 2nd box for Annual Additions, 30 in the Years to Grow box, and 5% as the Interest Rate. Click Calculate and voila, the answer is $22,041.91…yes, a month.

Now, you can’t buy 5% compound on long-term care insurance policies anymore affordably.  Most companies have priced 3% compound the best. So I usually use that same calculator to determine how much benefit I need to start with to grow it at 3% compound to get to the target in 10, 20 or 30 years…depending on the age of the purchaser and that person’s family longevity.In this case, $9000 a month at 3% compound will grow to $21,845 in 30 years and that’s close enough.  If a single person had income of $6000 a month to put with the monthly benefit, then I can solve for $16,000 a month, which would only take an initial monthly benefit of $6,700 at 3% compound.  This would lower the premium considerably. I say “single person”, because income could still be needed for a spouse or partner. Can you see why it is so important to set up a personal consultation to determine the best way to plan for long-term care? You can do that here.

Now the cost of care varies greatly by geographical area so you will need to see what it is where you live or where you plan to retire. Here are links to two well-known cost of care studies:

Genworth

John Hancock

Numbers don’t mean much until you see how they are used. When one person needs care at $75,000 per year, $500,000 can easily be spent in less than four years.

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Note: “Income Needs” is the portion of household income needs that the assets had been relied upon to provide and assumes annual inflation of 3%. “LTC Expense” is based on a typical annual cost and is subject to 5% annual inflation. “Investment Yield” is assumed at 4% annually after taxes.

Think using a 4% after tax investment yield is too pessimistic?  Here is the same chart using 6%.  Doesn’t look a whole lot better to me. You’re still out of money in less than five years.

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You can explore this website to see various ways that people are finding to pay for long-term care. You will definitely want to explore the LTC Useful Links to find organizations who will help find caregivers. When you’re working full-time with a family of your own, it’s very hard to find the hours it can take to find caregivers, schedule their time and keep everything going to make sure your loved one is safe.