A new research paper estimates that roughly 85% of couples will utilize long term care (LTC) prior to death – but the impact will vary considerably based on a number of factors.
Long-term care expenses represent a known unknown in retirement planning. A large majority of households will need some sort of LTC support as they age, and costs for certain types of long term care, like nursing homes, can run over $100,000 per year, according to the paper.
However, most families will not incur hundreds of thousands of dollars of expenses. Who’s at risk? A group from UBS Wealth Management uses a simulation-based framework to analyze how often LTC expenses are likely to cause ruin in an otherwise prudently constructed financial plan.
Using nationwide cost averages and specific inflation rates, their analysis indicates that the median couple will incur $184,000 in LTC expenses between age 65 and death. Roughly 25% of couples will incur expenses of more than $500,000, and 10% of couples will incur expenses greater than $1 million.
Or you could be one of the 15% of families who will have no LTC expenses at all.
The researchers conclude that:
- Most couples will utilize some type of long term care service during their later years.
- The median lifetime LTC expense for a couple that is healthy and 65 years old in 2016 will be $184,000.
- Some households will experience much higher lifetime expenses — up to $3 million.
- Not including LTC in a retirement plan will result in overestimating the sustainability of the plan.
- Women, in particular, need to incorporate clear plans for handling LTC expenses.
In summary, financial plans that don't incorporate long term care expenses can significantly overestimate the long-term sustainability of the plan.
