Financial Planning for Long-Term Care

Financial planning for retirement or "old age" is typically based on factors that are fairly well known and more or less under personal control. That is, most people choose when to retire, Table 1 Aging Changes in ADL rates (per 1000 persons age 65+) SOURCE: U.S. Bureau of the Census. 65+ in the United States. Current Population Reports, Special Studies, P23-190, 1996. Pages 3-21. know the profile and amounts of their retirement income resources, and more or less know (or can control) many, if not most, expenses. In contrast, planning for long-term care is planning for the unknown.

The United Seniors Health Council, a non-profit organization that advises consumers on long-term care issues, reports that at any one time only 6 percent of people over age sixty-five live in a nursing home, and that only half of people age eighty-five and older need help with everyday activities of daily living (ADLs). Very few people, however, can look ahead twenty or thirty years and truly know if they will be one of the fortunate 94 percent or healthier 50 percent who will not need some form of long-term care in old age. Thus, financial planning for long-term care is based on (at least) four interconnected unknowns: (1) How long will I live? (2) Will I be healthy or not? (3) How much will health care and long-term care cost? (4) How will I be able to afford those costs?

In this context it is not surprising that over 80 percent of the American public, middle-agers (ages forty-five to sixty-four) even more than older people, are worried that the unknown costs of long-term care will erode their retirement income and assets. Consequently, this overview of financial planning for long-term care considers the following four topics: (1) Who should plan for long-term care? (2) What are the financial characteristics of long-term care? (3) What are the financial choices and options in paying for Table 2 Health, Wealth, and Vital Aging SOURCE: National Council on the Aging "American Perceptions of Aging in the 21st Century," national survey (January-February 2000) long-term care? (4) What professionals, organizations, and information sources are available to inform this planning process?