The Retirement Cost Variable You May Be Overlooking

One of the most significant cost factors in retirement planning isn’t even on most participants’ radar screens — and it can vary widely depending on where you live.

Information drawn from a new website by Lincoln Financial Group indicates that the current national averages for full-time long-term care services can range from $2,860 per month to $14,386, depending on the setting and level of care required.

According to a U.S. Department of Health & Human Services brief, more than half (52%) of Americans turning 65 will need some form of long-term care services in their lifetime, care that typically begins in the home. Data shows the national average for a home health aide in 2015 increased 1.7% over 2014, and since the national average fee for a home health aide in 2015 was $22 per hour, that could add up to $46,000 per year based on 40 hours of care per week.

The costs can be significantly greater for home health care if a registered nurse is necessary: The national average fee for a registered nurse is $83 per hour, which may cost more than $172,000 annually, according to the report.

For those who progress to or begin their care in a skilled nursing facility, the national average for semi-private room is nearly $87,000 annually, while a private room costs approximately $99,600 — a 2% increase over 2014 for each respective setting, according to the report.

Lincoln notes that the most expensive states for a semi-private room in a skilled nursing home are Connecticut ($151,110), Massachusetts ($138.335) and New York ($135,780. The least expensive are Texas ($56,940), Oklahoma ($58,400) and Arkansas ($59.495).

The Impact on Retirement

A 2012 report by the nonpartisan Employee Benefit Research Institute (EBRI) notes that nursing home stays among retirees have increased steadily during the past decade, and that among people age 65 and higher, nursing home stays increased from 6% in 2000 to 8.5% in 2010. Additionally, the report notes that over the past decade, use of professional home health care has increased steadily, as has the percentage of people with long-term care insurance (LTCI) who use professional home health care, though for those using home health care, LTCI coverage is low — 13.2% in 2010.

A separate EBRI analysis found that, assuming 100% of the average expenses (based on post-retirement income) for components likely to be encountered on a regular basis (e.g., food, housing, transportation) — but ignoring the costs of nursing home and home health care expenses — about 17% of those in the second-income quartile would run short of money by the 20th year in retirement, as would 5% of those in the third-income quartile. However, when also taking into account the costs arising from nursing home and home health care expenses, the percentage in the second-income quartile now projected to run short more than doubles (to 38%), while nearly four times as many (19%) of those in the third-income quartile are likely to run short of money in retirement.

Add Your Comments

2 Comments

  1. Posted April 27, 2016 at 7:54 am | Permalink

    There are long deferred annuities, or “longevity annuities” that can be structured to pay the annuity at 85 but will begin paying 10 years after purchase if you end up in assisted living or long term care with if you meet a minimum number of ADL’s, in the policy I have, two. With this type of deferred annuity you have a very cost effective way to protect against long term care if things go bad, and for living to 105 if things go well. Proposals from the Treasury Department allow use of IRA and 401(k) funds to purchase the protection and the funds are then excepted from mandatory distribution requirements (with dollar limits). No approach is right for everyone, but this one made sense for my wife and myself. Might be worth a look.

  2. Nevin E. Adams, JD
    Posted April 27, 2016 at 11:00 am | Permalink

    Great points, Dallas. Those interested in learning more can check out “Could QLACs Close the Retirement Savings Gap?” at http://www.napa-net.org/news/managing-a-practice/industry-trends-and-research/could-qlacs-close-the-retirement-savings-gap/, as well as the Treasury Department guidance at https://www.treasury.gov/press-center/press-releases/Pages/jl2673.aspx

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