Planning for Surging Health Care and Long-Term Care Costs

In addition to securing one’s wealth to pay for retirement, increasingly, individuals need to save even more money to help deal with the rising cost of long-term health care in old age. Financial planners must be sure they’re including this crucial aspect during the conversations they’re having with their clients. If long-term health care plans are overlooked for clients, financial professionals can be missing out on an important component of a retirement plan.

Since health care costs have continued to rise, often much faster than inflation, a strategic plan can ensure clients’ wealth is allocated properly during retirement. Without the foresight that plans for these potential costs, even highly affluent clients can see their wealth quickly decline. Health care costs surging until a person actually has to pay it, the sticker shock of health care costs in retirement might not seem that bad. However, this cost continues to rise and financial planners should discuss this topic with their clients during the retirement planning process.

“The estimated cost of healthcare for a retired couple has risen 29 percent in 10 years.”

Since 2005, when the estimated price of health care for a retired couple amounted to $190,000, this number has risen 29 percent to an estimated $245,000 in 2015, Fidelity reported. One of the main factors driving the cost increase is extended life expectancies. While longer lives are a good thing, it ultimately causes health care costs to climb higher. In addition, medical and prescription prices are also increasing drastically.

In addition, although nearly three-quarters of the 2015 Couples Retirement Study said being able to afford unexpected health care costs during retirement was their primary concern, with more than half worrying about not having enough savings for retirement, only 21 percent of respondents have developed a retirement plan. Financial planners working with high net worth individuals might find their clients more responsive to formulating a comprehensive plan for retirement. However, it’s important to include a robust strategy that includes surging health care costs as well.

“A private room in a nursing home cost more than $83,000 a year.”

Long-term care costs

Moving beyond rising health care costs, the price of long-term care facilities continues to increase as well. In 2010, a private room in a nursing home cost more than $83,000 a year, according to the U.S. Department of Health and Human Services. Even for high net worth individuals who have saved a considerable amount of money over the course of their lives, this cost can add up over time. For retirees who would prefer to remain living in their own home, but who are unable to care for themselves, home health aides cost roughly $21 per hour, with the price rising with the quality and experience of the services. One way to mitigate the high costs associated with living in a nursing home or hiring a home health aide is by including long-term care insurance into the client’s retirement plan.

Take a look at your financial potential in retirement.Having a plan in place

Financial planners working with pre-retirement clients must be sure to include the rising costs of long-term health care into their forecasts. As shown by the more than 25 percent rise in costs over the course of a decade, it’s simply not enough to merely incorporate current long-term health care estimates either. It’s important to project a future figure based on extrapolating the current estimates and adding on an additional 15-25 percent increases, depending on how close the client is to retirement. Younger clients will need to factor in even higher costs over a longer period of time.

In addition to standalone long-term care insurance, options are available that incorporate long term care coverage as a part of a life insurance policy. Using these options to plan ahead can help alleviate the drain on a person’s accumulated wealth from ever rising costs.

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