Long-Term Care Planning
Long Term Care (LTC) might feel like a big financial burden, and it's true, it can really eat into your savings, especially if you're looking towards retirement.
Imagine this: Kelly, who's 75 and divorced, suddenly needs long term care, and this goes on for 4 years. In her area, Monroe County, New York, the care costs about $400 a day, and that price goes up by 6% every year.
What Will it Cost Each Year?
Let's break down the costs: The chart you're looking at shows how much you'd shell out for Long Term Care each year. Starting at $144,000 today, the yearly cost keeps climbing by 6% each time, reaching up to $518,909 in the fourth year.
The Impact on Your Resources
The costs associated with a health event that requires Long Term Care can mount quickly and have a potentially serious impact on your savings. Assets that you expected to have through retirement may need to be liquidated to cover the additional expense of Long Term Care and may become depleted much sooner than they would have otherwise.
Let’s assume that $500,000 of capital resources will be available when Kelly turns 75, at which time a need for Long-Term Care will arise. Let’s also assume these assets grow at 5% annually and withdrawals from them will be taxed at a federal level of 25%. Kelly’s savings will be used to offset her Long-Term Care costs ($144,000 per year)
How quickly will your resources be used?
The chart below shows how the resources available when Kelly is 75 would be expended. The dark blue arrow indicates the rate at which the resources are used if no need for Long Term Care arises. The red arrow shows the same resources being expended in the event that LTC is required. Based on the above assumptions, you can expect a loss of 4 years of funding which amounts to $1,944,181.