By Jamie Hopkins, Director of Retirement Research at Carson Group
I once received an email from a family friend about long-term care insurance. He was frustrated over a premium increase – which wasn’t the first rate hike – yet, he was still thankful for the policy.
Despite the rising cost, he knew the importance of long-term care insurance in helping protect himself and his family. Mostly because he knew the alternative, and had seen examples of it play out time and time again.
The discussion brought to my mind one of the most powerful examples of that alternative, straight from children’s literature and feature film – Willy Wonka and The Chocolate Factory (or Charlie and The Chocolate Factory).
If you are familiar with either of the two movies or have read the 1964 book, you will recall the scene. It features Charlie’s four bed-ridden grandparents crammed rather uncomfortably into a single bed. They appear to be reasonably content, yet all four are presumably unable to walk and must rely on the constant care of Charlie and his mother.
The scene is powerful, depicting the severe physical toll of aging and the immense burden that providing long-term care can impose on a family. Although the imaginative setting is far from modern, the plight of Charlie’s decrepit grandparents can serve up a dose of reality that can teach us a variety of long-term care lessons for today.
1. Most people end up needing long-term care services.
In the movie, three of the four grandparents are in need of some long-term care assistance. This is strikingly similar to the often-cited statistic that 70 percent of those aged 65 and older will need some long-term care services during their lifetime.*
Not all of this care will take place in an institutional setting, and for many people, it will only be required for a few weeks or months. However, for the unlucky, it could extend for years or even decades. As we age, the likelihood of needing long-term care services increases, so as our population ages, we will certainly see a burgeoning demand for long-term care services.
2. Care typically falls on family members.
Charlie and his mother are the primary caregivers for the grandparents. This, too, is very common and has been the case for years.
Often it is the family members who step in to provide long-term care services for their loved ones. In fact, according to some estimates, family members provide nearly 80 percent of all long-term care services, and they provide it in an informal and unpaid manner.*
3. The most common family member providing the care is a full-time working woman.
Not only do family members typically provide long-term care services, the burden of providing care tends to fall on full-time working women.
The ongoing responsibilities can severely impact the female caregiver’s career, health and finances. Many caregivers note that providing elder care impacts their own health over time, contributing to a vicious cycle in the United States.
4. Long-term care can create a huge financial burden.
Long-term care, even if unpaid and provided by family members, creates a huge financial burden on the family unit.
The caregiver might not be able to work outside the home for enough hours per week to qualify for retirement benefits. She may not be able to remain in the workforce for an adequate number of years to help fund her own retirement, and caregivers may be called upon to help pay for medical supplies or food.
According to an AARP report*, family caregivers spend $6,954 annually in out-of-pocket costs. Long-distance family caregivers can spend even more, with an average out-of-pocket cost of $11,923 per year. Topping the costs chart are institutional settings with average nursing home fees in some states reaching well over $100,000 a year.
5. Without a long-term care plan in place, you rely on luck or charity.
The family in Willy Wonka is clearly struggling financially at the beginning of the story, and there is little hope for a bright or financially secure future for them. But, through an amazing combination of luck and a charitable benefactor, the family is ultimately saved, at least financially.
The storybook ending serves as a stark reminder that in real life, failing to plan for the eventuality of long-term care leaves the financial security of a family completely up to chance.
See the Full Picture
What can people do to improve the picture for their future? Long-term care planning is one of those topics people want to avoid because it requires them to imagine a time and situation that they would rather not think about.
However, for most people, the eventual need for some type of long-term care will be unavoidable. When it happens is not the best time to investigate the options – there is a real need to be prepared ahead of time. This could be as simple as talking to family members about providing care. Or it could require more advanced planning, which includes establishing funding mechanisms for the possibility of needed care.
Long-term care insurance is specifically designed to cover long-term care costs and can be a great solution for some. However, for others, a hybrid insurance policy might be better, one that mixes both long-term care benefits and life insurance or an annuity payment. Or for some, self-funding will be the goal. For others, long-term care planning will require reliance on government funding through Medicaid, the primary payer of long-term care costs.
In the end, what most people need is a plan for long-term care. There are many long-term care financing options available today and new products continue to be developed. Each plan depends on your own specific circumstances.
The first step is to talk to your family and a financial advisor about what you want and what you can afford, and develop a plan together. Any plan would be better than to share a bed with three other family members and cross your fingers that a wealthy candy mogul saves the day, consider taking the next sensible step and put a long-term care plan in place.
*AARP Report: November, 2016