The changing family dynamic and need for long-term care insurance

When planning for retirement, not all seniors who reach Medicare eligibility age take into account the necessity to purchase supplemental insurance for long-term care. The majority of care to seniors often comes from family members, but the changing ratio of support from family caregivers may soon not be enough to cover the demand, according to the AARP.

In the AARP report "The Aging of the Baby Boom and Growing Care Gap: A Look at Future Declines in the Availability of Family Caregivers," the ratio of potential family caregivers to seniors who were 80 years or older was seven for every senior who may need care. By 2030, that ratio will decline to four seniors who need care to just one potential family caregiver. This is prompting the need for long-term care insurance.

What is long-term care?
According to the Administration on Aging, long-term care is a wide range of services that seniors may need for their personal care. When seniors are no longer able to care for themselves and perform daily functions, they require personal assistance. Typically, these daily functions include bathing, getting dressed, eating, going to the bathroom and getting from one place to another. However, long-term care can extend to other household activities like cleaning, money management, shopping for food and clothing, pet care, using the phone, preparing and cleaning up after meals and emergency responses. If seniors cannot do these actions alone, they likely need a professional attendant.

Medicare does not cover this expense, so many will purchase long-term care insurance as supplemental coverage to avoid financial trouble. Long-term care can cost thousands of dollars, and without accounting for these potential expenses, seniors can run into financial trouble or not receive the care they need.

Do I need long-term care insurance?
The amount of care that seniors need throughout their lives is different for every person and may change with age or illness. However, according to the Administration on Aging, 70 percent of people turning 65 today will require some form of long-term care to support them in their remaining years. That means most will need to account for these expenses or purchase long-term care insurance to help cover the costs. Women tend to need long-term care for more time, with an average of 3.7 years. Men require an average of 2.2 years of long-term services and support.

About 20 percent of seniors today may never need long-term care, but another 20 percent will need these services more than five years. Long-term care spanning several years can bankrupt a person who does not have an insurance plan. This can include services at home or in a qualified nursing home.

How to save on long-term care insurance
Medicare will cover some of the costs of long-term care for a short period of time with specific requirements. A portion of the expenses are covered if the Medicare beneficiary requires the professional skilled services of a rehabilitation facility, though the coverage will only extend for 100 days maximum. Reportedly, the average amount of Medicare-covered long-term care is only 22 days. Seniors who need care for longer than 100 days may need to purchase insurance. The coverage options are different for those who are qualified for Medicaid, though this means they must have an income level that is below a certain threshold.

Long-term care insurance policies have been known to be costly, and the rates can rise over time as a person gets older. Fortunately, the Treasury Department recently announced that people will be able to move some of their savings in 401(k) plans into an insurance product called an annuity. The deferred annuity provides monthly payments and a guaranteed stream of income later in life. This means that seniors can use that income to pay for long-term care insurance premiums.

"All Americans deserve security in their later years and need effective tools to make the most of their hard-earned savings," said Mark Iwry, deputy assistant secretary for retirement and health policy and senior advisor to the secretary of the Treasury. "As boomers approach retirement and life expectancies increase, longevity income annuities can be an important option to help Americans plan for retirement and ensure they have a regular stream of income for as long as they live."

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