How Likely Are You to Need Long-Term Care?

I spoke to a local investment club the other night. My presentation was about our team’s retirement-income research, and I also included an extended discussion about portfolio construction during retirement and bucketing. (These were investment enthusiasts, after all.)

But guess what topic most of the group’s questions centered around? Long-term care. Attendees wanted to know what percentage of the population has long-term care insurance (8%—I just looked it up) and whether I have a long-term policy myself (I don’t). What do I think of the hybrid products that bundle life insurance or an annuity with some long-term care coverage? How much do you need to save for long-term care if you don’t have insurance coverage?

Indeed, long-term care is the elephant in the room for retirement planning, especially for people who have some resources (and therefore are unlikely to qualify for government-provided care) but not unlimited resources. Not only have life expectancies increased for affluent Americans, boosting the incidence of cognitive decline and in turn the need for long-term care, but decades of rising long-term care premiums have led many older adults to skip insurance in favor of self-funding long-term care.

For these self-funders, the crucial questions are: How likely are you to need paid long-term care, and for how long? A look at the data on long-term-care usage presents a mixed picture. While most older adults will need some type of long-term care in their lifetimes, a much smaller subset will have a sustained, intensive long-term-care need requiring paid care. The data also provide clues about who’s most likely to need paid long-term care for a long time.

Digging Into the Data

For starters, some definitions: Long-term care isn’t medical care. As such, it isn’t covered by Medicare or healthcare insurance. Rather, long-term care relates to assistance with what are called activities of daily living, such as bathing, dressing, and eating.

Most people are likely to need such care in their lifetimes. A recent research brief from the Department of Health and Human Services estimates that 56% of Americans turning 65 are likely to develop a condition requiring long-term care.

That’s an alarming statistic to be sure. However, it’s important to note that the number captures all care provided, both paid care and unpaid care delivered informally by family members and friends. Of course, providing care can take a huge toll on unpaid caregivers—physically, mentally, and on their careers. But if the aim is to gauge the financial impact of long-term care, the data on paid long-term-care usage are less scary. Forty-five percent of the population aged 65 and over are anticipated to need some type of paid care in their lifetimes, with an average duration of 0.8 years. Just 4.4% of people over age 65 will need paid care that lasts longer than five years, and another 10% of people 65-plus will need paid care that lasts between two and five years. Note that “paid” in this context encompasses any type of professional care, whether provided by the government, paid out of pocket, or covered by insurance. Unpaid care is just that—care delivered informally by family and friends.

Other studies have corroborated that a fairly small percentage of people over age 65 will have a catastrophic long-term-care need. For example, research from the Center for Retirement Research at Boston College examined data on long-term care usage noted that about a fourth of people age 65 and older will have a care need that it classifies as “severe,” meaning that an individual needs care for three years or more and/or requires a high level of assistance with multiple activities of daily living. (Note that the CRR research included both paid and unpaid care.)

Who’s Most at Risk?

At first blush it’s good news that in both studies, a fairly small percentage of people over age 65 will have a serious long-term-care need: extended in duration, extreme in intensity (that is, the individual needs help with many activities of daily living), or both. The issue, of course, is that you don’t know in advance how likely you are to need such care or how much care you’re likely to need. The data do provide some clues, however.

Gender: Women are more likely to need paid long-term care than men, and the duration of that care also tends to be longer. According to the Department of Health and Human Services research, 51% of women aged 65 and over will need paid long-term care. Meanwhile, 39% of men who are 65-plus will need such care. That differential helps explain why long-term-care insurance is typically more expensive for women than men.

Marital status: Married people are less likely to need paid long-term care than unmarried ones. In the HHS data, 51% of unmarried people over age 65 require paid long-term care in their lifetimes, whereas it’s 43% for married people. The Center for Retirement Research study reached a similar conclusion, with unmarried women the most likely to have a care need classified as moderate or severe.

Income Level: People over age 65 at lower income levels are more likely to need paid long-term care than is the case with people at higher income bands. According to the HHS data, 49% of people over age 65 who are in the lowest income quintile will have a long-term-care need. (One factor may be that lower-income people are more likely to experience early-onset dementia than people in higher-income bands.) Meanwhile, 44% of people in the highest income band will need paid long-term care.

Health Status: People who self-reported excellent health at age 65 were almost just as likely to need paid long-term care as individuals who rated their health as fair to poor at age 65. However, the Center for Retirement Research data suggest that people who self-reported excellent or good health at age 65 were less likely to need long-term care than those in poor health.

Caveats

If there’s a good news story in the otherwise glum topic of long-term care, it’s that a fairly small share of the population will develop a severe or sustained long-term-care need, and fewer still will require a heavy level of paid care for a long time. The odds appear to look even better for married people and those with above-average levels of wealth.

However, there are a couple of important caveats in the mix. First, while just 4% of the population over age 65 is expected to need paid long-term care for longer than five years, 22% of the population will need long-term care for more than five years. The disconnect is explained by unpaid caregivers, usually family. And as anyone who has shouldered care of this kind knows, it can exact a heavy toll.

Moreover, given that dementia is a key catalyst for needing long-term care, it’s worth factoring in the interplay between dementia and physical health. Carolyn McClanahan, a financial planner who’s also a medical doctor, notes that the person who’s in good physical health but experiencing cognitive decline is more likely to have a sustained need for long-term care than is the case for less-healthy people who encounter dementia.

“If I have a client who’s in average or below-average health when they develop dementia, we only worry about two years of long-term-care expenses. But if someone is very healthy, the average long-term need for someone with dementia is about five years,” she noted in my forthcoming book, How to Retire.

That suggests that individuals with a family history of dementia who are otherwise in good health should either consider long-term-care insurance (or a hybrid product) or set aside a larger portion of their portfolios to cover long-term care. I’ll be writing more about these topics in the weeks ahead.