Financial Planning for Long-Term Care

The old and the old and frail. Over the course of human history most of the improvement in life expectancy has taken place in the past several hundred years, much of it in the past few decades. Improvements in life expectancy at birth (forty-seven years in 1900 vs. seventy-six years in 2000) have been substantial, but the more directly relevant trends are improvements in life expectancy at the older end of the life cycle. For long-term care financial planning a key question is, for example: How likely is it that a sixty-five-year-old will live to age ninety? As reported in a special U.S. Census Bureau analysis of trends in aging, in 1940 the probability that a sixty-five-year-old would survive to age ninety was 7 percent. By 2000 this figure had more than tripled: there was a 26 percent chance that a person celebrating his or her sixty-fifth birthday in 2000 would live to age ninety—and the percentage was estimated to increase to 42 percent by 2050.

As is well documented, however, adding years to life does not always mean adding robust, healthy years. Research using standardized measures of ADLs demonstrates that significant decreases in personal capacity and increased need for regular (e.g., daily) assistance take place as people age from their mid-seventies to mid-eighties and older. Table 1 documents this substantial increase in the need for daily assistance. While the actual percentage of older people requiring such daily assistance is comparatively small—306 per 1,000 (or 30.6 percent) at age seventy-five to eighty-four need daily help in taking a bath—the acceleration of the rate from that age range to age 85+ is substantial: bathing assistance, 171 percent; dressing, 130 percent; and toileting assistance, 149 percent. From the perspective of planning for long-term care, few people know if they will be part of the lucky 69 percent or the unlucky 31 percent who need assistance.

Middle-agers. Although long-term care services are used primarily by people in their eighties and older, financial planning for long-term care is, or should be, largely a task of middle age for two reasons. First, as financial gerontologist Davis Gregg argues, middle age is the stage in the human wealth span when retirement planning should take place. The earlier financial planning takes place, the better, but certainly by age fifty planning should be under way. The relative balance between accumulated income and anticipated expenses should be estimated and examined. The potential costs of long-term care, even if not precisely knowable in numerical terms, should be included in the estimates.

A second middle-age dimension of long-term care financial planning focuses on the middle-agers as the children of elderly parents. One of the less publicized consequences of longer life expectancy is that nowadays many more middle-agers will have surviving parents than was the case in the recent past. As reported by historical demographer Peter Uhlenberg, as recently as 1940 the probability that a fifty-year-old would have both parents alive was only 8 percent, compared with 27 percent in 2000. And the probability that a sixty-year-old child will have at least one parent still alive had increased to 44 percent in 2000 from only 13 percent in 1940.

The public image of middle-agers as a generation "sandwiched" between dual responsibilities to children and to aging parents is much less accurate than it was in 1985 or 1990. Figure 1 shows the ratio of the number of teenage children per middle-ager compared to that of elderly parents per middle-ager. This "support ratio" for teenagers has been declining, while starting in 2000 the elderly-parent support ratio has increased substantially. As American families move into the twenty-first century, middle-agers appear to have more parents than they have teenage children. Financial planning for long-term care includes planning for parents as well as for oneself.