Strategies for Long-Term Care Financial Management
In a recent study by the U.S. Department of Health and Human Services (HHS), it was found that more than half of Americans entering their late 60s will develop a disability serious enough to require long-term care. This statistic underscores the importance of planning for long-term care as part of one's retirement strategy.
The first step in this planning process is making a realistic evaluation of whether you are likely to need long-term care. According to the HHS, 56% of individuals will likely need care, while 44% will likely not.
If the plan is to secure care with self-funding, you may need to save more aggressively to accumulate enough funds to cover care costs along with other retirement-related expenses. However, self-funding is the most flexible option, but it carries the risk that funds may not be available when needed due to unexpected factors like market downturns.
Expenses related to physicians' fees, pharmaceuticals, and other supplies for medical treatment or support should also factor into long-term care planning. The average cost for a private room in a nursing home in the U.S. is just above $108,000 per year, while in New York, the cost exceeds $158,000 annually.
Long-term care insurance can provide dedicated funds for those facing a high probability of care needs, but fees increase every year and may not keep up with care costs caused by inflation. Another option is hybrid policies that combine life insurance with long-term care. While these policies offer more flexibility in terms of how funds are spent, they typically come with higher premiums.
Hybrid policies allow unused benefits to be converted into death benefits, offering another attractive feature. However, regardless of the chosen funding option, those who feel the need to establish some sort of funding for long-term care will likely need to adjust their retirement strategies.
The information provided is not investment, tax, or financial advice; consult with a licensed professional for advice concerning your specific situation. It's also important to note that the head of the US Department of Health and Human Services who initiated the investigation is Robert F. Kennedy Jr., who took office as the US health secretary in February 2025.
Aaron Cirksena, the founder and CEO of MDRN Capital, emphasizes the importance of planning for long-term care. Regardless of the chosen funding option, a regular review of the strategy is necessary, as changes may be required if healthcare costs increase or healthcare conditions deteriorate.
The HHS study found that many older Americans will face economic hardships in order to secure the long-term care they need. Therefore, it's crucial to start planning early and be proactive in addressing this critical aspect of retirement planning.
