Skilled care -- whether at home, in an institutional setting or by a professional caregiver -- is one of the most significant financial demands clients face in retirement, says advisor Joseph Birkofer with Legacy Asset Management, in Houston.
"The average person has a vague idea of long-term care expenses and a lot of hope that their assets will cover them,".
"They never sit down and actually identify the specific financial demands of their retirement days."Joseph Birkofer, Legacy Asset Management, in Houston
Free is Not Really Free
While professional long-term care is expensive, "free" care provided by family members can be financially burdensome as well. Many people who end up relying on unpaid care do so out of necessity, says Jesse Slome, executive director of the American Association for Long-Term Care Insurance.
"A significant number of people wait too long and the cost gets too high,"Jesse Slome, executive director of the American Association for Long-Term Care Insurance
But family members who end up acting as caregivers can incur losses of $303,880 on average for a typical caregiver, according to an earlier Metlife study cited in AARP's 2015 "Valuing the Invaluable" report. This takes into account the loss of wages and Social Security and pension benefit losses due to leaving the workforce early.
Whether clients choose unpaid care or rely on it out of necessity, it's important to understand the hefty costs of such care.
THE VALUE OF INFORMAL CAREGIVING: $470 BILLION
In 2013, the estimated economic value of unpaid family caregiving was $470 billion. Caregivers offered 37 billion hours of care for their spouses, partners and other loved ones. The total value is based on 40 million caregivers providing approximately 18 hours of care every week at the rate of $12.51 per hour.
This value -- which surpassed total Medicaid spending ($449 billion) -- has risen steadily, up from $450 billion in 2009, $375 billion in 2007 and $350 billion in 2006, according to the AARP study.
HURDLES AT WORK: 61% OF CAREGIVERS MADE WORKPLACE ADJUSTMENTS
In 2014, around 60% of caregivers were employed either full time or part time and faced competing demands from their workplace, according to the AARP study. Among those caregivers, 40% were 50 years old and above.
Of those surveyed for another 2015 AARP report, "Caregiving in the U.S.," 49% made adjustments with working hours, 15% took a leave of absence, 7% received warnings about performance or attendance, and 5% had to turn down promotion offers as a result of caregiving.
"Workplace challenges often arise when children become primary caregivers of their parents,"
"These challenges can include having to take time off in the middle of the day, using personal time to take the parent to doctors' appointments, and using vacation time to visit their parents in other cities or locations."
EARLY RETIREMENT: 22% OF RETIRED CAREGIVERS LEFT THE WORKFORCE EARLY
Family caregiving often leads to the caregiver quitting a job. According to the AARP "Valuing" study, around 22% of retirees left the workforce earlier than planned in order to care for an ill spouse or family member.
Around 83% of people in their prime working years (ages 51 to 54) may need to take care of their own parents or their parents-in-law, according to research cited in the AARP study. For those nearing retirement (60 to 69 years), more than 45% face the risk of needing to care for a parent.
RELYING ON FAMILY: 73% OF ADULTS EXPECT FAMILIES TO OFFER LTC
The AARP report on valuing informal care found that around 73% of adults aged 40 to 65 expect their families to provide LTC when required. This is almost seven times more than those who expect to use a home health agency, nursing home or assisted living facility.
"Most people don't think of long-term care,"
"We all think that we will live and be very healthy; the wife knows that she is going to take care of her husband. It's not something they plan on."Susan Reinhard, senior vice president and director of the AARP Public Policy Institute, and lead author of the "Valuing the Invaluable" report
FINANCIAL STRAIN: 68% OF CAREGIVERS USED THEIR OWN MONEY TO SUPPORT LTC
Family caregivers face financial challenges while caring for their loved ones. The AARP found that around 68% of family caregivers had to use their own money to help provide care for a relative.
Families often have to put other important financial goals -- like saving for retirement or a child's education -- on hold.
"Putting off these events or borrowing money to pay for them can lead to stress for all family members,"Allen Hamm, founder of Superior LTC Planning Services in Pleasanton, Calif.
"Children want their parents to be taken care of."
But think about this typical situation, he cautions: A father who is 30 years older than his children will be in his late 80s when his children are in their 50s, who in turn will be paying for the college education of the grandkids.
'PSYCHOLOGICAL BURDEN': 88% OF MIDDLE-INCOME CAREGIVERS SAID IT WAS HARDER THAN EXPECTED
According to Hamm there are more than finances to consider: "The silent costs are costs that go far beyond the financial costs of the actual care."
While families do incur financial losses by providing care, they also experience stress and emotional challenges. Around 88% middle-income people, ages 49 to 67, said that family caregiving was harder than what they had expected, according to the AARP study on valuing informal care. It required more patience, emotional strength and time than estimated.
"Many people have the notion that a family member will take care of them, but that notion becomes very uncomfortable when you are talking about personal care like bathing or helping one go to the bathroom."
"That poses a physical and psychological burden."
BUSINESS LOSSES: US BUSINESSES FACE $25 BILLION IN LOST PRODUCTIVITY EACH YEAR DUE TO UNPAID CARE
Informal caregiving costs extend beyond families.
U.S. businesses face $25 billion in lost productivity due to absenteeism among working caregivers. The losses reflect a range of costs including absenteeism, shifts from full-time to part-time work, replacing employees and workday adjustments, according to the AARP study.
The amount of care provided increases with the age of the caregiver, according to a 2012 study from Johns Hopkins University. On average, the time spent by caregivers each week is 25.3 hours for those aged 55 to 64; 30.7 hours for those aged 65 to 74; and 34.5 hours for those 75 years and above.
Meanwhile Reinhard notes that 24% of caregivers report spending five years or more in caregiving and 26% said between one and four years.
And those providing care for 21 hours or more every week are twice as likely to have been in the caregiving role for 10 or more years, according to the "Caregiving" survey.
According to Birkofer, the paradox of improved medical treatment for diseases like Alzheimer's is that while medicine can reduce symptoms, it can make the caregiving period substantially longer.
"The challenge in planning long-term care is two factors: money and time. Time is the hardest."
"Time depends on the kind of infirmity that the family member experiences."
Caring for a family member with Alzheimer's and dementia not only eats away at a family's money, but also their time. According to estimates from the Alzheimer's Association, in 2010, 14.9 million families and other unpaid caregivers of patients with Alzheimer's disease and other forms of dementia provided around 17 billion hours of unpaid care. On average, caregivers worked 21.9 hours a week doing work that is valued annually at $11.93 per hour.
IS LTC A WOMEN'S ISSUE?
"Long-term care is a women's issue."Jesse Slome
The majority of caregivers (60%) are women and among those receiving care, 65% are women, according to the AARP "Caregiving" survey. Additionally, caregivers more often care for their mothers (73%) while those caring for a spouse more often do so for the male partner (55%).
Reinhard disagrees. It's everyone's issue, she warns.
How is the best way to plan for your own longevity? Retirement planning should happen well before you retire. Protecting what you save for your retirement should also happen prior to retirement. Long-Term Care Insurance, for many American families, provides the resources and services to provide you with control over your own life. You will have a choice on the type and location of your future long-term care needs.
Risk of Long-Term Care is Big
Understanding you have a risk is the first step. As you get older your risk of needing long-term care services also increases. The cost of paid care services drains savings and income. Care is not cheap. The cost of long-term care does vary depending on where you live. Your research should start by finding the current and future cost of care services. You will then determine how these costs will impact your savings, income, and lifestyle. The LTC NEWS cost of care calculator is a great resource. Click here and find your location.
Helpful Resources Make Long-Term Care Planning Easier
LTC NEWS provides many other resources to help you plan. However, you will need the assistance of a qualified Long-Term Care Insurance specialist to help you design a plan and shop to find the best coverage at the best value. This is usually not a financial advisor or general insurance agent. It takes experience and expertise to understand and design Long-Term Care Insurance. These policies are custom designed but remember premiums can vary over 100% between companies for the exact same coverage. This is why you should seek the help of a qualified Long-Term Care Insurance specialist. Find a specialist by clicking here.
Use a Long-Term Care Specialist to Help You Plan
Make sure your specialist actually is a specialist. Ask them not only how many years of experience they have, but more importantly how many people have they helped? An actual specialist will have at least 250 living clients with a Long-Term Care Insurance policy. Often, the best specialists have thousands. This means they will understand underwriting and how it differs from each insurance company. They will also understand the federal/state partnership program which provides additional asset protection. This should mean they understand policy design and claims. Knowing how these policies actually get used at the time of claim is very helpful in designing an affordable plan.
Be Ready to Answer Questions
Expect the specialist to ask you numerous questions about your health, family history, and retirement plans. Once they get this information, they will be able to usually give you actual quotes right away. Unless you have unusual health, you shouldn’t have to wait for their recommendations. The plans are custom designed, so give your input on the policy design. The next step is to apply and see if you can get approved. Most insurance companies use electronic applications so the process is quick and easy. Usually, you do not have to pay anything in advance. Once approved, you have time to make adjustments in coverage before you pay your first premium.
Long-Term Care Insurance is easy, affordable and rate stable income and asset protection. It will also give your family the time to be family.