With Christine Benz, Director of Personal Finance at Morningstar
Long-term care (LTC) is a major issue for millions of retirees. With Americans living longer, few are financially prepared for sharply rising long-term care costs.
To learn more about this, Steve speaks with Christine Benz, Director of Personal Finance at Morningstar. Benz has authored numerous books on personal finance. Benz’ recent post, 75 Must-Know Statistics About Long-Term Care: 2018 Edition, provides insights that we must all be aware of.
Understand The LTC Landscape
47% of men and 58% of women, 65 and older, will need some form of long-term care in their lifetimes. And 14% of all Americans will need LTC for more than five years.
LTC needs rise with age. A third of Americans above the age of 85 will have Alzheimer’s or dementia. Almost half of all seniors, under the age of 65, need assistance with two or more activities of daily living.
Paying For Care
Americans spent $225 billion on long-term care in 2015, up from $30 billion in 2000.
15% of 65-year olds will spend more than $250,000 on LTC. Adults with dementia will need about $340,000 to cover lifetime LTC expenses.
Costs Vary By State
The median annual cost for adult day care was about $18,200 in 2017. Assisted-living facilities cost about $45,000 annually.
The median cost of a private room in a nursing home was $216,000 in Manhattan, $51,000 in Monroe, Louisiana, and $97,000 nationwide.
Median long-term care expenses far outstrip retirees’ median annual income of $23,400. And LTC costs are rising at a 5.5% annual rate, well ahead of 2% inflation.
Out Of Pocket Costs
In 2013, 19% of LTC costs were paid out-of-pocket and only 8% were paid by private insurance.
LTC sets you back financially. Healthy adults over 65 had $263,200 in median household wealth. This number dropped to $94,200 for adults with long-term care needs.
In 2018, 34 million Americans provided unpaid care to an adult over the age of 50. Of those, 16 million cared for a dementia or Alzheimer’s patient.
Two-thirds of these caregivers were female and a third were daughters caring for parents. 70% suffered work-related difficulties due to their caregiving duties.
In all, friends and family delivered 83% of all private long-term care. About 36% experienced high levels of financial strain due to their caregiving responsibilities.
State And Federal Funding
Government funding plays a major role in long-term care. Medicaid bore expenses for 51% of all LTC services and support; 20% was provided by other public sources.
In all, LTC expenses accounted for 20% of all Medicaid funding. Medicaid projects that its LTC costs will rise by 50% over the next 10 years.
Medicaid Tied To Income Level
Medicaid funding supports low-income Americans. To be eligible for Medicaid, adults should have no more than $123,600 in assets, and no more than $3,090 in monthly income, as of 2018.
Long-Term Care Insurance
As of 2014, less than 15 insurers offered standalone LTC policies. Policies carry an average annual premium of $2,772, and 99% cover nursing home and in-home care.
One in five businesses, with over 10 employees, offer LTC to their employees.
Unfortunately, you have to be healthy to qualify for long-term care insurance. 14% of all 50-59year-old applicants were denied care due to health issues. Denials jumped to 45% in the 70-79 age group with health issues.
Any one of us could need long-term care in the future. Unfortunately, many of us may not qualify for Medicaid or LTC insurance. Hence, it’s best to know the facts and plan ahead to self-fund future long-term care needs.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: I’m very happy to welcome back Christine Benz, who is Morningstar’s Director of Personal Finance and also the author of a couple of books, 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual Funds, Five Star Strategies for Success. Now Christine writes on many personal finance topics, so today I picked one that I’m seeing more and more in my own financial planning practice. One of Christine’s latest articles counts 75 must-know statistics about long-term care. Now we’re surely not going to go through all of them, but I highlighted those that I thought would be ripe for discussion.
Hey, Christine welcome back to the show.
Christine Benz: Hi, Steve, great to be here.
Steve Pomeranz: Let’s just take a look at the broad picture in terms of how much is being spent, let’s say, from the year 2002 to today.
Christine Benz: The costs in 2000, 30 billion was spent to cover long-term care-related expenditures. By 2015, that number had jumped up to 225 billion, so roughly eight times the amount of expenditure in that 15-year period. So we’re seeing big increases. We have an aging population and that’s one of the big reasons why.
Steve Pomeranz: Well and above just the typical adjustment for inflation, well above that.
Christine Benz: Absolutely, absolutely, this is syncing up with the fact that we are aging as a population and with that come increased outlays for long-term care.
Steve Pomeranz: So if 225 billion is being spent now, this is a good time for companies to be getting into this business. And I know that in my area we’re seeing a lot of assisted living facilities popping up all over the place like mushrooms really. So everybody’s getting in on the act, and I think there’s probably still some room for that to grow.
Christine Benz: Absolutely, and there are a lot of different variations in care delivery. In fact, we were helping my mother-in-law look at assisted living facilities. And just finding that the types of facilities varied so dramatically as well as the ways that you might pay for them.
So there might be some that require a buy-in type situation and others that require monthly outlays. So they’re all different and it can be complicated to choose among them.
Steve Pomeranz: That’s for sure.
Steve Pomeranz: Also when the money runs out some facilities will accept Medicaid and some will not, so you have to be very careful about what you do there as well.
Christine Benz: That’s right.
Steve Pomeranz: The percentage of people turning age 65 who will need some type of long-term care services in their lifetimes is 52%. So about half of us, who are turning age 65 will need some type of long-term care. When they say, some type of long-term care, what do you think that means?
Christine Benz: Well, this is typically care that is not medical care. For most of us our medical care, our health care, will be covered by Medicare. These would be other services for day to day maintenance, whether cooking in the home or getting dressed or bathing. All of the things that don’t fall under the medical care heading would fall under this long-term care kit heading.
Steve Pomeranz: And there’s always this question about how long long-term care will be needed. Will it be needed for one year, three years, five years, or longer? What are some of the percentages that we’re seeing there?
Christine Benz: Well, generally speaking, we see people who are lower income individuals having a greater need for care over a longer duration.
So about a third of people who are over 65, who are in the lowest 20% of income will have a long-term care need of two years or longer. About 20% of people who are in the highest income, 20%, will have a long-term care need of that duration. So we do see some discrepancy based on income.
And we also see a discrepancy in terms of who will need care for a long period of time. So about 14% of the population will need long-term care for longer than five years. And that’s the thing that gets us all worried, right? We think about, well, if we have maybe a long-term care outlay of six months or something like that, that’s something we could probably cover with our portfolios.
But if we have that long duration need for long-term care, that’s what can really spell trouble for a portfolio’s longevity.
Steve Pomeranz: Like a one-in-seven chance that that will happen, which is relatively low. But actually, one-in-seven, if you took that bet, I think you would expect to win a bet like that from time to time. So it’s not as low as it may indicate, that’s a lot.
Christine Benz: Yeah.
Steve Pomeranz: What about the average number of years, let’s say, that women will need long-term care?
Christine Benz: Well, this is interesting, it’s two and a half years on average; so the women who do need long-term care, it’ll be roughly two and a half years on average.
For men, it’s actually lower, 1.5 years is the average duration of long-term care for men. And the basic idea there is that because women tend to live longer than their spouses, usually, they’re the caregivers for their spouses. So they’re providing some of that care on an unpaid, ad hoc basis just as caregivers for their spouses.
Whereas their spouses predecease them, so women are typically left to pay for long-term care in some sort of other setting rather than in the home.
Steve Pomeranz: I think us men have to step up to the plate here, we really do because I don’t know if we generally have the caregiver gene, but we’ve got to do something to do this better.
Let’s talk about Alzheimer’s because that’s another big issue in an aging America. 10% of Americans over age 65 have Alzheimer’s or dementia, so one in ten, that seems like a pretty high number to me.
Christine Benz: It is, and we see that number really jump up for the older segments of our population.
So, of people over age 85, that number jumps up to roughly a third of the population is experiencing some type of cognitive decline. The perverse thing about all of this is that the healthier you are, the longer you’re likely to live. And that in turn, that long-life expectancy or that long-life span makes you more susceptible to encountering dementia later in life.
Steve Pomeranz: Yeah, so that doesn’t mean, don’t live a healthy life, that’s a catch-22.
Christine Benz: It is, absolutely.
Steve Pomeranz: Dying young, younger solves a lot of problems but nobody wants to die young so that’s ridiculous.
Christine Benz: Exactly.
Steve Pomeranz: What about the percentage of individuals that are turning 65 now spending less than 25,000 or greater than 250,000.
What is the percentage of those that are spending less than 25,000 on long-term care?
Christine Benz: Yeah, it’s about 58% and the statistic was between 2015 and 2019, so that’s to some extent an encouraging number. So the idea is that of individuals turning 65, their outlays for long-term care over their lifetimes, to the extent that they have them, will be pretty minimal.
So 25,000, you’d rather not pay those expenses, but it’s probably manageable in many middle-class households. On the other hand, if you happen to be part of that cohort where there’s a long-duration long-term care need, of course, that’s more costly. So about 15% of the population does incur a sustained long-term care need that’s very, very costly and that exceeds $250,000.
Steve Pomeranz: So a quarter of us, literally 27%, according to these numbers, will have long-term care expenses between 25 and 250,000.
Christine Benz: Right, and that syncs up with the idea of maybe the typical long-term care duration of two years.
Steve Pomeranz: Yeah.
Christine Benz: And so the outlays would fall somewhere between those two poles, 25,000, not higher than 250,000 but somewhere between.
Steve Pomeranz: When we put these numbers in our financial planning software, we usually use four years and adjust it pretty heavily for inflation. So we’re going beyond the average, but we don’t take it out longer or take it too short as well.
Christine Benz: You’d rather be safe than sorry on this front.
Steve Pomeranz: Exactly.
Christine Benz: You’d rather be conservative, and I think you’re really wise to mind the inflation of these costs.
Steve Pomeranz: Yeah.
Christine Benz: Because the most recent inflation rate for nursing home costs was 5% between 2016 and 2017. A staggeringly high inflation rate, much higher than the general inflation rate.
Steve Pomeranz: Yeah, but the good news is that for five years, it was 3.8%.
Christine Benz: It was a little bit lower, but that short-term number did give me pause in part because we’ve got a caregiver shortage. And that’s one of the reasons why I believe these numbers are inflating so rapidly.
Steve Pomeranz: The annual cost for an assisted living facility in 2017 is $45,000, and I’m having this experience as well, as we’re helping a family member. And we’re finding that it’s about 40 to 45,000 for assisted living. Now, there are different kinds of assisted living facilities. One’s been described as kind of a Ritz type, which is much more expensive, many more services than a Marriott type.
So I’m talking really about the Marriott type in my area, South Florida is costing us about 40, $45000. What about a semi-private room and then a private room, Christine?
Christine Benz: Yeah, so for nursing home costs, those are significantly higher than one would pay for assisted living. So with assisted living, you typically receive some or most of your meals in a group setting that are provided through the facility.
With a nursing home cost, you’re getting a lot more care because a person who is in such a facility needs more care. So $86,000 was the median annual nursing home cost for semi-private room in 2017. For a private room, it’s even more expensive, it was about $98,000 in terms of the median.
One point I would make there is just that we see a huge gradation based on geography. So people who live in large, urban centers like in Manhattan, for example, the average nursing home costs would be roughly $200,000 or even higher. Whereas in more rural areas it may be lower than these median costs that I just cited.
Steve Pomeranz: Good coverage on this very important topic, Christine Benz, Morningstar’s director of personal finance, has joined me. If you have any questions, don’t forget to come to our website if you want to read this again and get some of the links that are associated with this topic, we will have them there.
And just a reminder that I’m putting on a live event, Thursday, September 13th in Boca Raton at 10: 00 AM. So go to our website for more info which is stevepomeranz.com. Thank you so much, Christine.
Christine Benz: Thank you, Steve.