Long Term Care for Childfree Individuals

Aug 28 / Jay Zigmont, PhD, CFP®

Who is going to take care of you when you get old? – You are. If you are Childfree, chances are that someone has asked you this question. The question itself is loaded, as it implies that they are counting on others to take care of them. As Childfree people, we know we need to have a plan for our own long-term care; it is just a question of how we want to do it.

For those of you who prefer video, here is a discussion I had with Cody from Childfree Family about Estate Planning (article continues below the video).

Who is going to take care of you when you get old? – You are. If you are Childfree, chances are that someone has asked you this question. The question itself is loaded, as it implies that they are counting on others to take care of them. As Childfree people, we know we need to have a plan for our own long-term care; it is just a question of how we want to do it.

Let’s clear up one thing upfront. Paying for long-term care is not a problem unique to being Childfree. In 2021, the US Census put out a report looking at Childless Older Americans (over 55). What they found was that 2.5% of Childless individuals over 55 got any financial support from family. While that may sound like a low number, only 1.5% of parents got any financial support from family. The bottom line is that everyone needs a plan. We are just more aware of it. The other difference is that nearly 4 in 10 Childless people over 55 live alone, compared to 2 in 10 parents. (more fun stats here. )

With that out of the way, let’s look at the cost of long-term care. Long-term care is not only costly, but the price is also rising between 3 and 5% each year. While there are many variations in long-term care, I’m going to look at 4 levels and the national average cost per month:

  • In-Home Care – The national average is 44 hours of care from a “Home Health Aid.” This may vary by state, but it reflects a certified or licensed caregiver coming into your home to help with various medical and personal needs. National Average per month: $5,148.
  • Assisted Living – Think of this as an intermediate step between home care and a nursing home. You are living in a facility that provides support for Activities of Daily Living (ADL). National Average per month: $4,500.
  • Nursing Home Facility – In a nursing home, you are living in a facility with support for both ADLs and medical services (rehab, skilled nursing, and more). National Average for a Semi-Private Room: $7,908, and Private Room: $9,034. Semi-Private is a fancy way of saying you have a roommate (or roommates).

The problem with national averages is that they vary widely by state. You can look up your own state at https://www.genworth.com/aging-and-you/finances/cost-of-care.html There is also a ranked list of costs at https://pro.genworth.com/riiproweb/productinfo/pdf/298701.pdf  To give you an idea of how much it varies, the average price for a private-room per month goes from $5,931 in Missouri to $31,512 in Alaska. The price for long-term care is so expensive that it may be cheaper to live on a cruise ship year-round than to pay for long-term care (remember, you get free meals on a cruise, and they do have medical facilities onboard).

To figure out what long term care will cost you, the next thing to keep in mind is the average length of stay (LOS):

  • Home health care: 2 years (an approximate number is hard to measure because it is not publicly reported.)
  • Assisted Living: 28 months (~840 days)
  • Nursing Home: 485 days

The thing with averages is that there is a wide range. Those who need the highest level of care (people with Alzheimer’s, who need constant support and security) tend to also be those who have the longest stay. It also varies by gender:

  • Average female needs 3.7 years of care.
  • Average male needs 2.2 years of care.

Side note: For my transgender, non-binary and gender-fluid friends, while insurance agencies cannot discriminate based on gender, all of the actuary tables (the math behind things) are simple, binary charts based upon gender. In many cases, there is not enough data to make estimates beyond simple male/female. It is not truly fair, but it is all the data I have access to.

To figure out the total cost of long-term care for you, we need to make a bunch of assumptions. It would be very easy to estimate your long-term care costs if you knew exactly what type of care you would need, for how long, and at what age, but my crystal ball is not that good. As an example, I will work through assumptions for me (43-year-old male, 2.2 years of care, at age 80, and a private room because there is no way I’m going to have roommates):

  • Total Cost (in 2022, national average): $238,497
  • Total Cost (in 2059, when I’m 80, assuming 3% inflation): $711,967

That means that I need to have over $700k in cash when I hit 80 or have another plan for my long-term care. There are tons of variables that I did not take into account. These include things like higher inflation (at 5% inflation, it would be $1.4 million), changes in medical/healthcare policies, impact on my wife, and more.

What happens if I just change the example to a 43-year-old female (3.7 years average, everything else the same):

  • Total Cost (in 2022, national average): $401,109
  • Total Cost (in 2059, when I’m 80, assuming 3% inflation): $1,197,401

Ok, looking at those numbers is scary. Let’s just admit that. They are a bit extreme as they assume a private room in a nursing facility, but I tend to plan for the worst and hope for the best. Even though the numbers are scary, facts are our friends. With those numbers in hand, we can work on a plan to pay for long-term care.

How to pay for long-term care

There are 4 common options to pay for long-term care:

  1. ‘Opt-out’ (don’t pay for them).
  2. Medicare and Medicaid
  3. Paying of pocket (investing and retirement funds)
  4. Long-Term Care Insurance

The ‘Opt-Out’

In my research on Childfree Wealth, I was amazed by the number of people whose plan for long-term care is to ‘opt-out.’ I am not recommending the option, but the opt-out option is a fancy way of saying euthanasia. While euthanasia is illegal in many areas, I heard time and time again about plans to go to Oregon or Switzerland (or similar). Each person has their own beliefs on this topic, which I respect. The challenge is that while it may seem easy to say this is your long-term care solution, I don’t know that it should be part of your financial plan. If you decide that the opt-out is your long-term care plan, make sure you have excellent documentation of your wishes and have had extensive conversations with your loved ones.

Medicare and Medicaid

Many people in the US assume (incorrectly) that Medicare will pay for your long-term care. Medicare will only pay for up to 100 days of long-term care, and then only under very specific circumstances and at a limited rate. The bottom line is that Medicare is not an option for long-term care.

Medicaid does pay for long-term care. Of the total US expenditures on long-term care, Medicaid accounts for 43%. The problem is that to qualify for Medicaid, you have to have little to no assets and be living on an income near the poverty line. Medicaid is administered by each state, and the qualifications vary widely by state (look up your state at https://www.medicaid.gov/state-overviews/index.html ). So what that means to you is that you will have to spend through nearly all of your savings before you will qualify for Medicaid. There are rules in place that even prevent you from giving away your assets for up to 5 years in order to be eligible for Medicaid.

A note on ‘Medicaid Beds.’ In skilled nursing facilities, there are a limited number of Medicaid Beds. This is because the facilities make less on a Medicaid Bed than any other bed. The result is that you will not have a private room on Medicaid, and you are likely to get a lower level of care and facility if you can even find a bed. It is sad to say, but there is a definite difference in care and options if you are on Medicaid.

Pay out of pocket

While long-term care might be expensive, you can plan to pay for it yourself. Paying for it yourself means you have more flexibility and the option to pick your own level of care. My plan (for my wife and me) is to pay out of pocket. I want to get care in my home as long as possible, even if that means paying for 24 x 7 staff. Paying out of pocket means I can hire whomever I want (as opposed to certified/licensed caregivers required when you have insurance), and I can craft my own long-term care plan. Paying out of pocket has more flexibility, but the responsibility is all on me.

You can look at using your retirement accounts and/or health savings account (HSA) as a place to keep and grow your money to pay out of pocket. The challenge is that you need to make enough on your investments to beat the increase in cost every year. In my example above, if I had $238,497 in an account today, it would have to grow by at least 3% to beat inflation in long-term care costs. That means it needs to be invested in the market, which comes with risk. The most significant risk is that the market is down at the same time as I need the money. If the market goes down next year, but I don’t need it for 30+ years, it is less likely to have an impact. If the market dives 30% (as it did during the COVID March 2020 crash) when I need it, then I might have to change my plans.

If you want to pay out of pocket for care, make sure you look at what you are invested in and what type of account it is in. If you have access to an HSA account, this is a near-perfect way to keep your money for long-term care. An HSA has a ‘triple tax’ benefit. You get to write off the amount you put in, it grows tax-free and comes out tax-free if used for medical expenses. Keep in mind that if you have your money for long-term care in a traditional retirement account (pre-tax) or a taxable account, you may have a large tax bill due when you need to start paying for care.

Paying out of pocket may look attractive, but there are many variables to consider. You might want to consider working with an Advice-Only CERTIFIED FINANCIAL PLANNER™ to model out precisely what you need to contribute, where, and when, to cover your long-term care. Also, keep in mind that this money will have to be kept separate and safe from your everyday spending until you need it.

Long-Term Care Insurance

The downside of paying for things out of pocket is that you have no limit to your risk and how much you might have to pay. This is where long-term care insurance comes in. There are dozens of options for coverage and plans, but the bottom line is that you can insure much of your long-term care now and rest a bit easier. A few things to keep in mind:

  • As a Childfree person, we tend to have less need (or no need) for life insurance. That means you may want to stay away from hybrid long-term care insurance plans, which combine either life insurance or an annuity with long-term care insurance.
  • It gets harder and more expensive to get long-term care insurance as you get older. Your current health, along with your parents’ health, impact premiums and underwriting.
  • If one of your parents has or had a history of dementia, Alzheimer’s, or other similar diseases, your rate will be higher, and it may be hard to find long-term care insurance. If they both had dementia or Alzheimers, you might not be able to get long-term care insurance.
  • You can get long-term care insurance as young as 30. I encourage all of my clients to have a plan (either insurance or to pay it out of pocket) by 45, as that seems to be the sweet spot.
  • Women are going to pay more than men.
  • Couples may get a lower rate as they may share coverage (and the insurance companies assume you will help each other).
  • You choose your coverage rate, inflation protection, length of coverage, and elimination period. The elimination period is how long you have to wait before your coverage starts.
  • Long-term care insurance provides reimbursement of expenses. This means they don’t pay the costs upfront, you have to tell them each month what you spent, and then you are reimbursed.
  • Long-term care insurance will only pay for certified/licensed providers (you can’t pay a family member to take care of you).
  • There may be options for annual premiums, paying for the insurance all upfront, or over ten payments.

So, what does long-term care insurance look like? I worked with Jill MacNeil at LLiS to look at examples of long-term care plans and premiums. (NOTE: This is not a recommendation for or against any company. Jill was nice enough to help me, and I use LLiS as a broker for my clients as they don’t try to sell anything to them except what I ask for. I also do not sell insurance or any other product.)

These examples are for illustrative purposes only and assume good health in February 2022. Jill shared the following with me: (She quoted two companies, NGL and Mutual of Omaha. Each has its sweet spots for coverage and price.)

 

I started by looking at the national average daily cost of care.

 

• $169 home health (based on 44 hours per week)
• $148 assisted living
• $297 private room in a nursing home

 

What we typically recommend for a comprehensive policy is that clients have a daily benefit that will cover approximately 80% of nursing home costs. Therefore, I looked at a $240 daily benefit for these quotes. With a $240 daily benefit, they would have more than 100% of home health and assisted living costs covered.

 

Keep in mind that premiums are parallel with the daily benefit. If you reduce daily benefits by 25%, the premiums will be 25% lower, assuming you keep all other benefits the same.

 

I used 90 days for the elimination period, which is generally the sweet spot for policies.  Quoted 3% compound inflation rider. This will help policy keep up with inflation.

 

Annual premiums for a single male with 3 year benefit period, the average period of care 2.2 years.


Age 30Age 40Age 50
NGLN/A$2,184$2,595
Mutual of Omaha$2,464$2,568$3,070

Annual premiums for a single female with 4 year benefit period, the average period of care 3.7 years.


Age 30Age 40Age 50
NGLN/A$4,218$5,047
Mutual of Omaha$4,827$4,974$6,100

Annual premiums for a couple with 3 year benefit period with Shared Care rider.


Age 30Age 40Age 50
NGLN/A$5,630$6,737
Mutual of Omaha$6,391$6,614$8,042

 

Information about Shared Care:

 

• Mutual of Omaha: Coverage is shared, but each must save one year of coverage individually. So if one partner needs care for longer than their benefit period, they can access the other partner’s coverage. Also, if one partner dies before using all of their benefits, the other partner’s policy is increased by the unused benefits.
• NGL: Shared Care rider creates a third pool of benefits that you each have access to if you deplete your own pool of benefits.

Dr. Jay back here:

A couple of things to note:

  • NGL does not offer a long-term care policy for 30-year-olds
  • The premium is double for a female over a male, but the coverage is just about double
  • Couples have a shared pool and save a bit

I spent some quality time with Jill to understand these quotes and options. There are what seems to be an infinite number of options to lower the premium, but all come with lower coverage. If you have the money, there may be options to pay all of the premium upfront or over ten payments which may save money. The premiums can go up if the insurance company goes to your state and asks for a rate increase (which happens).

Conclusion

If I go back to my initial example, my estimated long-term care cost is $238,497 in today’s dollars. That is very similar to what Jill quoted of $297 per day for a nursing home. That means I could look at a long-term care insurance plan with an annual premium of $2,184 (it will be a bit more as the quote was for a 40-year-old) and not have to worry about paying out of pocket. I would still be responsible for 20% of the cost of long-term care, but that is only if I go to a nursing home. If the premium stays the same (it won’t, but I need it to stay the same for math), over the next 37 years, it would cost me just over $80,000.

Looking at that math, I find myself wondering why I am planning on paying for my long-term care out of pocket. I am sticking to my plan because I am confident in my financial plan, and I like the flexibility that paying for care myself provides. My plan is not suitable for everyone.

The bottom line is that you have options. None of the options should be ‘scary.’ The first step is to look at your financial plan and determine what works best for you. If you would like help with your financial and long-term care plan, I am an Advice-Only, Fee-Only, Fiduciary CERTIFIED FINANCIAL PLANNER™, and Childfree Wealth Specialist. You can learn more about how I can help you at https://childfreewealth.com, and you can schedule a no-cost 60-minute introduction meeting at https://calendly.com/coachdrjay/childfree.