The other retirement security challenge: long-term care


The possibility of needing long-term care — essentially, having to live in a nursing home or needing home nursing services — is a significant and largely unpredictable challenge to retirement security.

The Employee Benefit Research Institute (EBRI) projects a baseline estimate (assuming no change in the current system) that 57.4% of U.S. households headed by people aged 35 to 64 will be successful in retirement. (that is, they will not run out of money in retirement). If long term care costs are removed / ignored, this value increases to 75.5%. (EBRI Retirement Security Projection Model® (RSPM) – Analysis of policy and design proposals, Jack VanDerhei, Ph.D., Benefits Research Institute, 2018.)

Long-term care therefore poses a significant risk to retirement security. And we’re kind of in denial about it.

The cost of long-term care

Long-term care is expensive. According to, a semi-private room in a nursing home costs $ 225 per day / $ 6,844 per month—About $ 82,000 per year. This cost varies considerably by state (and by quality of care). And care for people with dementia or other special needs is significantly higher, 20 to 30% cost increase.

The challenges presented by the risk of having to pay these costs are particularly acute for low-income workers. Why? Because the income replacement goal of a earning worker of, say, $ 50,000 per year is (maybe) 60-80% of that number, which is roughly $ 30,000-40,000. per year. However, the costs of nursing homes / care are not a function of income. Within some general limits (and with a few obvious exceptions), the cost is the same whether you are rich or poor.

A problem of risk, not of income

All of this to say that the challenge of long-term care is a problem of risk, not an issue of income. If you need long-term care, you face a cost challenge that your Social Security benefit, often tailored to your income needs (especially for lower incomes), does not cover.

The risk is that in retirement, not only will you no longer have the opportunity to earn an income, but at some point you will not be able to take care of yourself at all. This does not happen to everyone, or even to the majority of retirees. But if it happens to you, it can sink your retirement boat.

The risk of needing long-term care falls disproportionately on women. They represent about 70% of the residents of retirement homes and two-thirds of people with dementia and Alzheimer’s disease. The obvious reason is that women (on average) live longer than men. It is no coincidence that one of the leading retirement home search services is called “A Place for Mom”.

What is plan B?

For individuals and their families without adequate resources, there are two main alternatives. First, their families can (and often shoulder) much of the responsibility of caring for them.

Overall, 16.3% of Americans provide unpaid care for an adult aged 50 or older (overwhelmingly a parent, usually a parent or grandparent). This puts all kinds of pressure on the caregiver, physical (21% report deteriorating health), emotional (40% “consider their caregiving situation to be very stressful emotionally”) and social (21%). report “feeling lonely”). Additionally, caregiving can deplete a caregiver’s resources: 27% stop saving, 20% use their savings short-term, and 11% use their long-term savings (including retirement accounts). (“Caregiving in the United States 2020: A Focus on Family Caregivers of Adults 50 and Over», AARP, 2020.)

Whatever the benefits of do-it-yourself long-term care (eg, emotional connection and increased sense of purpose), it comes at a significant cost. In addition, for the growing number of people who do not have children, relying on family can be a problem.

The other obvious plan B is a Medicaid nursing home. Medicaid pays 30% of total nursing home reimbursements and is the primary payer of over 60% of nursing home residents. However, Medicaid long-term care assistance is limited to those with very limited means, generally monthly income not exceeding $ 2,382 and $ 2,000 or less in assets. Indeed, individuals can sometimes engage in a variety of strategies to reduce their “excess assets”.

And the quality of Medicaid nursing homes varies widely, both state by state and with the community served: “in the poorest areas, nursing homes … (“Medicaid and Quality of Care: How Our Funding Structure Failed», Ariadne Labs, Sam Cox, 2020.)

Long term care insurance?

Is long-term care insurance a solution? There are a few issues with this.

First of all, it’s expensive. The annual rates (in 2020) for a policy with premiums paid from age 55, for maximum total benefits of $ 386,500 (per person) at age 85, were $ 1,700 (single male), 2,675 $ (single woman) and $ 3,050 (couple). (“Long Term Care Insurance Facts – Data – Statistics – Reports 2020American Association for Long-Term Care Insurance.)

Second, it is a small market that has shrunk considerably over the past two decades, with the number of insurers dropping from over 100 (2004) to “about a dozen” (2020) and the number of insurers. individual policies falling from 372,000 (2004) to less than 70,000 (2017). (The state of long-term care insurance.)

It seems that at these prices most people just prefer to self-insure. And many people simply cannot afford long term care insurance – most importantly, those low income people for whom Social Security is an adequate income solution but totally inadequate as a long term care solution.

A social solution?

If we care about the “retirement crisis” then we should be concerned about finding an adequate solution to the long term care challenge I have just described. I believe that this challenge – which, as we have seen, is a problem of risk and not of income – should be managed socially, at least for people whose working income is not sufficient to cover the costs of long-term care.

To be clear, I think we need a federal program funded from general revenues that provides adequate long-term care for people who meet certain criteria of need, within income / net worth limits that are much more generous than those who meet certain criteria of need. current Medicaid limits. Indeed, all we need maybe more flexible Medicaid criteria and better quality control.

Frankly, I don’t think there is any other way to deal with this problem.

In defining this position, allow me to recognize three deep problems, in increasing order of difficulty, related to the implementation of such a social solution.

The problem of means and need: Obviously, there will be an opportunity for (unscrupulous) people who have the adequate means to look after long-term care on their own, or who do not really need long-term care, to play with such a system. We would need a realistic and credible application of the wealth limits / need criteria, so that all of us who pay for it do not feel ripped off.

The problem of quality and responsibility: Likewise — and fundamental for such a project — we would need adequate criteria to judge the quality of care provided — objective and applicable standards.

The cost problem: As with health care and college education, when you put money into a system like this, it drives up the prices. I don’t know how to prevent this unless I nationalize the Medicaid nursing home industry. But we have to solve this problem — we can’t end up where we are with health care, with the most expensive system in the first world.

When I think about all these problems, I think: why aren’t there easy problems with obvious solutions? You are tempted to put your hands up and focus only on taking care of yourself.

But remember, these are usually crippled individuals who are, in many ways, literally helpless. They are our fathers and especially our mothers. Taking care of them is what it means to live together in community.

Michael P. Barry is a senior consultant at October Three and President of O3 Plan Advisory Services LLC, which provides pension regulatory analysis for plan sponsors and those who service them.

The opinions expressed are those of the author and do not necessarily reflect the views of ASPPA or its members.


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