Planning to fund long term care expenses? What you may want to consider

Morgan Stanley Wealth Management


Summary: Health care costs are rising, and some people may need to consider long-term care. Learn the moves you can make to help prepare yourself or a loved one. 

Senior couple sitting on a bench looking at a lake

Longer lifespans and rising health care costs are driving investors to think about and plan for uncovered care costs.

According to the US Centers for Medicare and Medicaid Services, the US spent approximately $4.3 trillion on health care in 2021, or nearly $12,914 per person.1 As spending rises, patients are also shouldering a larger share of treatment costs—driving up out-of-pocket expenses. The elderly, who may be more reliant on fixed income and require the most care, often bear the brunt of the costs.

It’s important to take steps to help minimize your financial exposure to uncovered medical costs, which could include long-term care expenses. However, unlike retirement planning where you are saving to afford a desired lifestyle for after your working years, planning for the less palatable aspects of aging can be more challenging for all of us.

Here are some factors you may want to consider.

Planning for long-term care costs

People turning 65 have almost a 70% chance of needing some type of long-term care services in their remaining years.2As of 2022, one year in a private room cost approximately $111,000, and by 2030 that number could be over $140,000.3 Even with a robust investment portfolio, you may have trouble handling such large costs with savings on hand.

Many adults are concerned about what rising health care costs could mean for their financial future. Approximately 55% of adults age 25 and older are either unsure or unable to estimate their annual retirement health care costs.4

Medicare Part A, which is made available by the government to people who have been in the workforce for at least 10 years and paid Medicare taxes as a payroll deduction, covers nursing facility care for a limited time, but only after a qualified hospitalization. However, Medicare will not pay for nursing homes when custodial care is the only care needed; nor will it pay for care for conditions such as Alzheimer’s disease.5 Patients suffering from Alzheimer's or other cognitive ailments often require hands-on assistance for many years.6

Help protect your retirement savings

First and foremost, ensure you’re planning and saving for multiple sources of income in retirement including a tax-advantaged savings plan like a 401(k) or IRA, Social Security, pension, inheritance, or real estate.

Then consider how to save for retirement with your future health care needs in mind. There are several options.

  1. Given lower premiums for younger policyholders, long-term care insurance should be a consideration.
  2. Another option may be life insurance with a long-term care rider, which allows families to tap into the benefits they would have received upon the insured’s death, while he or she is still alive and in need of care.
  3. Another option for funding long-term care expenses is to withdraw or borrow money from life insurance policies or generate income from annuities.  These options should be reviewed with your financial professional and tax advisor to understand how loans or withdrawals from insured solutions may impact other planning goals as well as any potential tax ramifications from accessing these cash values.

The bottom line

As health care costs continue to rise, it’s important to understand the options you have to help control your financial exposure to uncovered care costs. When considering how to fund your long-term care expenses, always be sure to keep in mind individual goals and timelines.

The source of this article, Planning to Fund Long-Term Care Expenses, was originally published on October 20, 2022.

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