What Happens to Your Retirement Plan If You Need Long-Term Care?

Long-term care isn’t simply a healthcare concern. A significant long-term care event can also become a major financial event in retirement.

When most people throughout the Greater Milwaukee area think about healthcare in retirement, they’re probably thinking about things like Medicare, doctor visits, prescriptions, or maybe an unexpected surgery.

But there’s another healthcare-related expense that I believe deserves just as much attention:

Long-term care. 

For many years, at countless events where I’ve spoken about protecting assets, I’ve brought up long-term care as one of the risks retirees need to be aware of and plan around. That’s because I’ve seen how a retirement plan that otherwise appears sufficient can quickly become insufficient once future healthcare and long-term care costs are introduced into the plan.

And that’s really why I believe this conversation matters.

We’re not necessarily talking about going to the doctor, having surgery, or filling a prescription.

We’re talking about the possibility that someday you may need help with some of the basic things many of us take for granted today.

And I think the biggest surprise for most people is just how exorbitant those future costs can be—and the financial burden they can potentially place on loved ones, on their own retirement plans, or even on what they had hoped to someday leave behind as a legacy.

What Exactly Is Long-Term Care?

Long-term care generally refers to services someone may need as they age or become ill and can no longer independently perform certain everyday activities.

These are commonly referred to as Activities of Daily Living, or ADLs, and include things such as bathing, dressing, toileting, maintaining continence, and feeding.

Why does this matter? Because we’re living longer.

According to research cited in our Retirement Confidence Roadmap, approximately 70% of Americans who reach age 65 will need some form of long-term care assistance during their lifetime.

Now, that certainly doesn’t mean everyone is going to spend years in a nursing home—or even encounter a future long-term care event, for that matter.

In fact, roughly one-third of today’s 65-year-olds may never require long-term care services at all. But for those who do, the average need can last approximately three years—and about one in five may need care for more than five years.

And that’s where I believe this becomes more than simply a healthcare conversation.

What Could This Do to Your Retirement Plan?

If you think about it:

• You could do a wonderful job saving for retirement.
• You could create a thoughtful retirement income strategy.
• You could have everything planned out, and everything might look great…

But what happens to that plan if you—or your spouse—eventually need some form of long-term care because one of you is no longer able to live independently?

Based on current long-term care costs and the average length of a long-term care event, it’s not difficult to see how the total cost of care could potentially reach hundreds of thousands of dollars. That’s how we’ve been modeling these potential future costs as part of our planning.

That’s not a small expense.

And such an expense, especially when extended over several years, could quickly deplete—or at minimum, severely impact—your retirement savings. What could have been assets earmarked to sustain you throughout retirement or eventually leave to loved ones may now be at risk of being spent down to pay for care.

This is why I view this aspect of planning as a critical part of protecting your assets.

That’s the part I don’t believe we should overlook.

This Isn’t Simply About Buying Long-Term Care Insurance

I think this is an important distinction because whenever the topic of long-term care comes up, some people immediately think: “Okay, so you’re saying I need long-term care insurance.”

Not necessarily.  And that’s not the point.

To me, the more important question is:
“From a planning standpoint, if a long-term care event happens, have you considered how you’ll pay for it?”

For some people, they may have enough assets that they’re comfortable paying for care themselves.  For others, some form of insurance may make sense.

There may also be other strategies or resources worth considering.

But the key takeaway is:
Not having a plan doesn’t make the risk go away.

And for many people, they may not have even thought about this potential risk until they’ve watched one of their own loved ones go through it.

The costs can be overwhelming, and the impact can extend well beyond the person needing the care. It can place a tremendous financial—and sometimes emotional—burden on the people they love.

That’s why I believe planning for the possibility of a future long-term care event is something we simply can’t ignore.

Whether you have enough assets to comfortably self-insure, need some form of insurance protection, or fall somewhere in between, the question still needs to be asked: “If this happens, how are we going to pay for it?”

Because without proper planning, the cost of care could potentially have a significant impact not only on your retirement, but also on the people and assets you hoped to protect.

It’s Part of the Bigger Picture

This is why I don’t look at long-term care as simply an insurance decision.

I believe it’s a retirement-planning decision.

If we’re building a retirement plan that’s hopefully designed to last 20 or 30 years—or longer—then I believe we should at least ask what could happen to that plan if a significant long-term care event occurs somewhere along the way.

That doesn’t mean we can predict whether you’ll need care.  We don’t really know.

And it doesn’t mean everyone needs to buy insurance. Depending on someone’s circumstances, insurance may or may not even be the appropriate—or affordable—solution.

But we can evaluate the potential economic impact and decide whether there’s something we should do about it.

That’s why I believe evaluating the potential financial impact of a future long-term care event should be part of a comprehensive retirement plan.

Instead of simply asking:

“Do I need long-term care insurance?”

Perhaps the better question is:

“If I eventually need long-term care, what happens to my retirement plan?”

Those may sound like similar questions. But they are not.

One begins with a product.  The other begins with your plan.

And in my opinion, that’s where the conversation around long-term care should start.

Watch our Complimentary Presentation, “The Retirement Confidence Roadmap”

OR

Schedule Your Complimentary Assessment

If you’d rather begin with a conversation, we’d be happy to answer your questions during a complimentary Introductory Conversation.