The Administration for Community Living reports that an American who turns 65 today will have a 69% chance of needing long-term care services at some point in their remaining lifespan. While the remaining 31% will never need the assistance of caregivers, about 20% of Americans turning 65 will need care services for at least five years.
Most seniors who need personal care depend on the unpaid services of family members. That solution to care needs isn’t feasible for seniors who have no nearby family members, or none who are able to provide unpaid care. Some older adults will develop disabling conditions that cannot be addressed with home care. Those seniors will need to obtain help in a nursing home or assisted-living facility.
Caregiver costs have been rising, thanks to a caregiver shortage intersecting with a growing demand from an aging population. The cost for in-home care for older adults increased by 14.2% between 2023 and 2024. In the same period, the cost of a private room in a nursing home rose by 9%, while assisted-living facilities raised their prices by 10%.
People who budget for retirement usually try to set aside money for Medicare co-pays or purchase insurance to cover them. They might forget the need to save money for uninsured caregiver costs. Apart from some short-term exceptions, Original Medicare does not cover the cost of long-term care. Neither do most Medicare Advantage plans, although some plans pay for adult day care services.
Retirement Savings
Writing for Kiplinger, investment adviser Jerry Golden recommends an “all asset” plan as a strategy to save money that will cover all retirement costs, including payment of caregiver expenses and other long-term care costs. Some of his concerns include:
- The possibility that Social Security benefits will be cut, an outcome that will depend on elected representatives ignoring the needs of retirees rather than the wishes of wealthy income earners who oppose raising the cap on tax contributions that fund Social Security.
- The modern tendency of Baby Boomers to carry mortgage balances into retirement.
- The tendency of Baby Boomers to provide financial support to their adult children, even if they sacrifice their own retirement savings to do so.
- The failure to modify traditional retirement plans to account for the likely need to pay caregivers or caregiving institutions at some point during retirement.
All-asset plans begin with traditional retirement savings, including:
- Maximizing home equity by paying off mortgages before retirement.
- An employer-provided retirement plan (such as a 401k plan).
- IRA and similar tax-deferred investments (divided among income-production and equity growth).
- Savings plans and investments that aren’t tax deferred.
While that retirement savings plan may be sufficient for retirees who never need to pay for caregivers, Golden suggests that additional components should be added to create an all-asset retirement plan. He uses the term “all-asset” to suggest that all assets are working together to maximize retirement income.
All-Asset Retirement Plans
Golden suggests putting home equity to work with a Home Equity Conversion Mortgage (HECM), the only reverse mortgage that is insured by the Federal Housing Administration. Combined with investments in lifetime income annuities, an HECM can assure retirees a lifetime of income. Golden recommends allocating lifetime annuities between a SPIA (single premium immediate annuity) for current income and a QLAC (qualifying longevity annuity contract) for future income.
Using a hypothetical retiree as an example, Golden explains how the all-asset plan both reduces taxes and maximizes the percentage of investment income that is insulated from market forces (such as stocks that lose value). The plan provides sufficient income to pay caregiver costs without withdrawing from an IRA and allows the retiree to leave children a larger inheritance than a traditional plan.
All-asset plans may not be for everyone. Golden urges people who are planning for retirement to consult with an investment adviser before making critical decisions, such as setting a schedule to withdraw from an IRA or allocating investment accounts between income and equity.