Only 16% of Retirees Are Confident About Affording Assisted Living Care

A recent survey conducted by the Employee Benefit Research Institute (EBRI) and Greenwald & Associates unveiled surprising statistics regarding retirees and their level of confidence about retirement. While 34% of retirees reported feeling “somewhat confident” that they will be able to afford care, only 16% reported feeling “very confident” of their ability to afford the rising costs of assisted and senior living. McKnight Senior Living notes that this percentage is a significant decrease from last year when approximately 20% of retired participants felt very confident. Retirees are also less likely than in previous years “to feel confident in their ability” to cover basic retirement expenses, as well as their ability to cover the costs of unforeseen medical expenses.

The Retirement Confidence Survey's Findings    

2018 marked the Retirement Confidence Survey’s (RCS) 28^th anniversary, which according to ERBI, makes it the longest-running survey of its kind.  This year, 2,042 Americans including 1,002 workers and 1,040 retirees were surveyed with the intent to measure their level of confidence regarding retirement. Overall, the findings revealed that retirees are less confident than they were as a group in previous years: “retirees’ overall confidence shows signs of decline, but their confidence in being able to afford medical and long-term care expenses in retirement is down significantly.” Other findings regarding the decrease in retirees’ confidence level include:

• 1 in 4 retirees say long-term care costs have been higher than they expected
• 4 in 10 retirees report that their health care expenses in retirement are higher than they expected
• The belief that Medicare and Social Security will continue to provide benefits equal to what retirees receive today has decreased

What the Results Mean for Those Planning for Retirement

The results show a clear trend that retirees are far less confident in their financial ability to afford the rising costs of healthcare as they age. One of the reasons why retirees may be experiencing a lack of confidence when it comes to affording long-term care is that there is no guarantee of how long a person will need care for. Research suggests that the need for care lasts on average about two or three years, however, there is no way to know how long a person will live for. This CNBC report explains that when it comes to long-term care, “it's not about mortality, it's about morbidity.” For example, a person with Alzheimer’s disease or dementia may be in care much longer than the average person and the costs can be astronomical.  The unknown length of time that care is required results in high annual premiums and interest rates for long-term care insurance, making it out of reach for many people.

Ways to Prepare for Assisted Living Care Costs

The need for long-term care may seem like a future consideration, however, it is important to consider the costs and plan how to afford care when you are in good health. CNBC suggests the following ways in which retirees’ can control the costs of assisted living care and long-term health care and prepare for the future:

1. Hybrid Insurance

These policies combine long-term care insurance with life insurance, often with a cash value that could be used for healthcare expenses. With hybrid policies, the premiums won't increase and money that isn't used towards health care can be left to beneficiaries. The downside: Hybrid insurance is complicated, can be less flexible than standalone long-term care insurance policies and may be more costly.

2. Long-Term Care (LTC) Insurance

This insurance is designed to cover health-care-related expenses such as at-home care or assisted living care that is often not covered under other insurance policies. The downside: LTC insurance is not a simple purchase. The costs are high, the different structures and policy options are confusing and there is no guarantee that premiums won't increase.

3. Medicaid Planning

Medicaid is a public assistance program geared towards low-income earners that generally pays for the largest share of long-term care.  However, the qualifying criteria is very strict and differ from state to state. The downside: You can only qualify for Medicaid once all your other assets have been depleted, which means having nothing left to supplement your care or to leave for your beneficiaries. One way to preserve your assets and still qualify for Medicaid is to set up a "Medicaid-proof trust" that puts your assets in an irrevocable trust to be passed on to your heirs when you die; however, trusts are complex and need to be written to the specifications of state laws and regulations to be effective.

4. Reverse Mortgage Line of Credit

Tapping into home equity is another way for some people to fund their care. A reverse mortgage line of credit is secure – a person’s borrowing power grows over time and can't be canceled as long as the homeowner is in the home and remains current on basic obligations. The downside: The biggest downside to a reverse mortgage line of credit is that the equity in your home is lost as you borrow money against it. Also, there are expensive upfront costs required to set up.

5. Self-Insuring

Self-insurance, or paying your health expenses out of pocket, may be an option for some high-net-worth individuals, but it can be risky. The downside: Those who self-insure could potentially spend down the nest egg they hoped to pass on to their heirs if they end up needing the money for assisted living care. Also, there could be major tax implications and penalties involved when liquidating assets. How confident are you in your ability to afford assisted living care or ongoing healthcare costs in your retirement? Let us know in the comments below.