Long-term care (LTC) is a topic that most people would rather avoid thinking about, let alone plan for. Yet, as the population ages, the need for independent living, assisted living, or nursing home care becomes an increasing reality for millions of Americans. Despite this, recent findings from The Alliance for Lifetime Income’s 2024 Protected Retirement Income and Planning (PRIP) annual study reveal a striking disconnect between public perception and retirement planners’ estimates of long-term care needs. The report highlights that nearly six out of ten people surveyed believe they may need some form of long-term care, yet only 34% of retirement planners estimate that their clients, ages 45 and over, anticipate this need. This underestimation signals an urgent need for greater awareness and preparation in retirement planning, not just for financial security but also for health and well-being in later years.

Understanding Long-Term Care and Its Growing Importance

Long-term care encompasses a range of services that help meet the medical and personal needs of individuals who are unable to perform everyday activities independently due to chronic illness, disability, or aging. These services include assistance with daily tasks like dressing, bathing, meal preparation, and medication management, as well as more intensive medical care provided in nursing homes or through in-home healthcare services.

With the U.S. population aging rapidly, the demand for long-term care is projected to rise sharply in the coming decades. According to the U.S. Department of Health and Human Services, approximately 70% of Americans aged 65 and older will require some form of long-term care during their lifetime. Despite this staggering statistic, many people remain unprepared to meet the physical, emotional, and financial challenges associated with long-term care.

This disconnect becomes even more concerning when considering the financial implications. Long-term care is notoriously expensive. The costs of in-home care, assisted living facilities, and nursing homes have been steadily rising, making it a major factor in depleting retirement savings. Without proper planning, individuals risk exhausting their financial resources, leaving them with fewer options for quality care in their later years.

The PRIP Study: Revealing a Gap in Retirement Planning

The PRIP annual study, conducted by The Alliance for Lifetime Income, provides a detailed look into how Americans and their financial planners approach retirement planning, with a focus on ensuring protected lifetime income. The third chapter of the 2024 report uncovers a significant mismatch between public awareness and financial planners' perceptions of long-term care needs.

According to the study, 59% of those surveyed believe they may need independent living, assisted living, or nursing home care at some point in the future. This statistic reflects an awareness, albeit not always backed by concrete plans, that long-term care could become a necessity for a majority of Americans. However, retirement planners do not share this level of concern. Only 34% of financial planners estimate that their clients aged 45 and over foresee a need for long-term care services.

This discrepancy points to a broader issue of underestimation within retirement planning. Whether due to optimism bias—where individuals tend to believe that negative events are less likely to happen to them—or a lack of proper discussion between planners and clients, this gap leaves a critical aspect of retirement planning neglected. If left unaddressed, the financial strain of long-term care could derail even the most well-thought-out retirement plans.

Causes Behind the Underestimation of Long-Term Care Needs

There are several potential reasons why both individuals and retirement planners may underestimate long-term care needs. One reason could be the stigma associated with aging and dependency. Many people prefer not to think about the possibility of losing their independence or needing help with basic tasks. This mindset can lead to procrastination or avoidance when it comes to making concrete plans for long-term care, especially in earlier stages of retirement planning.

Additionally, long-term care is often perceived as a distant, uncertain future event that might never occur. Retirement planners, in their effort to prioritize immediate financial concerns such as income replacement and investment strategies, may unintentionally downplay the significance of long-term care planning. The absence of immediate necessity can lead both clients and planners to underestimate the likelihood of needing long-term care, leaving this essential component out of discussions until it is too late.

Another contributing factor is the complexity and cost associated with long-term care insurance. Historically, long-term care insurance has been expensive, with premiums that many find unaffordable or difficult to justify. As a result, both clients and planners may shy away from discussing this option, opting instead to focus on other financial products that feel more tangible or pressing, such as annuities, life insurance, or traditional retirement savings accounts.

Furthermore, healthcare advancements and an increasing life expectancy may create a false sense of security. People often assume that they will remain healthy well into their older years, reducing the perceived need for long-term care planning. However, longer lifespans come with a higher probability of chronic conditions that necessitate long-term care services, making it crucial to integrate this aspect into retirement strategies early on.

The Financial Burden of Long-Term Care

Failing to properly prepare for long-term care can have devastating financial consequences. The cost of care varies depending on the type and location of services, but it is universally high. According to the 2023 Genworth Cost of Care Survey, the national median cost for a private room in a nursing home is over $110,000 per year. Even less intensive forms of care, such as in-home care or assisted living facilities, can cost tens of thousands of dollars annually.

Without proper financial planning, these costs can quickly drain retirement savings, forcing individuals to rely on government programs like Medicaid, which may not cover the full range or quality of services desired. This not only limits care options but can also diminish the financial legacy individuals hope to leave behind for their loved ones.

Moreover, long-term care is not always needed for a short period. Many individuals require care for several years, compounding the overall cost. For example, the U.S. Department of Health and Human Services estimates that, on average, women will need 3.7 years of long-term care, while men will need 2.2 years. This extended need for care highlights the importance of factoring long-term care expenses into retirement planning from the outset.

The Role of Retirement Planners in Addressing Long-Term Care

Given the significant disconnect between public perception and retirement planners' estimates of long-term care needs, it is clear that financial professionals have a crucial role to play in closing this gap. Planners must initiate proactive discussions about long-term care with their clients, ensuring that it is an integral part of any comprehensive retirement plan.

This means educating clients on the likelihood of needing long-term care and presenting options for funding it, such as long-term care insurance, hybrid life insurance policies, or setting aside dedicated savings for healthcare costs. While long-term care insurance may be expensive, there are other strategies to mitigate the financial impact, including annuities with long-term care riders or tapping into home equity.

It is also essential for planners to help clients assess their family situation, health status, and preferences for care, as these factors will influence the kind of services they may need in the future. For instance, those with a family history of chronic illnesses may need to plan for more extensive care, while individuals who prefer to age in place may need to budget for in-home care services.

Moreover, planners should encourage clients to think beyond just the financial aspects and consider the emotional and logistical challenges of long-term care. Having a clear plan for care can provide peace of mind, not just for individuals but also for their families, who may otherwise be left to make difficult decisions under stressful circumstances.

Moving Forward: Addressing the Gap in Long-Term Care Awareness

The findings from The Alliance for Lifetime Income’s PRIP study underscore the need for a more comprehensive approach to retirement planning, one that fully accounts for the potential need for long-term care. Retirement planners must take a more active role in raising awareness among their clients and helping them prepare for this often-overlooked aspect of aging.

For individuals, this means being honest about their future needs and open to discussing long-term care with their financial advisors. It may also mean adjusting their savings strategies or exploring new financial products that provide protection against the high costs of care.

As the population continues to age, the demand for long-term care will only increase, making it more critical than ever to close the gap between perception and reality. With better planning and increased awareness, individuals can ensure that they are financially prepared for whatever the future may hold, preserving both their dignity and their financial security in their later years.

Warm regards,

Sharon, Your Safe Money Lady™

Sharon Ben-David

Phone: (954) 261-5200
Licensed Mortgage Broker, Certified Professional Retirement Planning Adviser, and Financial Advocate

Protecting Your Nest Egg, Inc.

NMLS #2308601