AARP Long Term Care Insurance
AARP's annual cost of living survey found that the average household "set aside" $19, dwarfing the average 401(k) contribution at $3,374 for 2016. With an average monthly cost of $1,394 for long-term care in 2016, it's surprising how little attention most people have paid to these costs. As the population ages and more people enter their senior years (the median age in America is 37), many are wondering how they can plan for these types of expenses ahead of time.
As the cost of health care rises, health insurance premiums are reaching record heights. When asked if they will find extra money for retirement, 37 percent said they would try to save more via this method in 2016 while only 17 percent said they will actually do so. Getting a stay at home spouse or parent to provide care is another popular idea that 64 percent of Americans have thought about, but only 38 percent plan on doing so.
When asked how much their long-term care expenses might be over the next five years (starting from 2017), the average answer was 92 percent over five years, and 75 percent over 10 years.
It's not surprising that few people plan ahead when it comes long-term care for seniors. As the report points out, "while 70% of working adults have thought about what their long-term care expenses might be but not much more than a third have put much thought into it."
The need for long-term care is increasing as the average life expectancy in America is over 78 years now. When a senior can no longer live independently and requires assisted living, it will cost an average of $42,000 annually, while nursing homes cost an average of $87,000 per year. This doesn't even begin to deal with the additional costs which spouses and children will have to pay if they choose to help take care of their loved one, making this one area where long-term planning is a must.
As the cost of health care has risen, so too has long-term care insurance. The average weighted premium rose 4.5 percent to $1,242 in 2016. While this might look pricey, it's important to remember that this is an average premium (possibly skewed by younger people who have cheaper premiums). Premiums can range from $200 per year on the low end for a short-term policy to thousands of dollars per year for a more comprehensive policy.
The recent survey found that only 11 percent of respondents had purchased long-term care insurance (either their own or through their employer), and only half of those purchases were initiated in the last five years. The majority of AARP members who saw a need for long-term care insurance were those ages 50 and older, with only 17 percent of those younger than 30 having this need.
In all, a whopping 75 percent of respondents said they would pay more than $1,000 annually for long-term care in the future. Only 7 percent say that they will not be able to provide care at all (and even this could be disputed). For those who can't provide care, the state will step in and provide assistance, but it will certainly increase the cost.
When asked how much their long-term care expenses might be over the next five years (starting from 2017), the average answer was 92 percent over five years, and 75 percent over 10 years. For younger people with a longer investment horizon, this makes long-term care insurance less of a priority. For Gen Xers and boomers with an average life expectancy of 79 or 80 years respectively, there will come a time in life where they need to rely on these policies to cover their bills. This makes it likely that many will purchase these policies when they get closer to retirement age.