Addressing the potential threat of extended care expenses may be one of the biggest financial challenges for individuals who are developing a retirement strategy.

The Administration for Community Living estimates that by 2060, 94.7 million Americans will be aged 65 and older. Of those, it’s estimated that someone who just turned 65 has an almost 70% chance of needing some type of extended care.1,2

What Is Extended Care?

Extended care is not a single activity. It refers to a variety of medical and non-medical services needed by those who have a chronic illness or disability that is most commonly associated with aging.

Extended care can include everything from assistance with activities of daily living, like providing help with dressing, bathing, using the bathroom, or even driving to the store. Extended care may also include more intensive therapeutic and medical care requiring the services of skilled medical personnel.

Extended care may be provided at home, at a community center, in an assisted living facility, or in a skilled nursing home. It’s also important to recognize that extended care is not exclusively for the elderly; it is possible to need extended care at any age.

How Much Does Extended Care Cost?

Extended care costs vary state by state and region by region. The national average for extended care can cost anywhere from $50,000 to $100,000 or more a year. The cost for a home health aide starts at an average of $20 per hour, but can be expected to increase if skilled nursing is involved.3

Individuals who would rather not burden their family and friends have two main choices for covering the cost of extended care: they can choose to self-insure or they can purchase extended-care insurance.

Many self-insure by default, simply because they haven’t made other arrangements. Those who self-insure may depend on personal savings and investments to fund any extended care needs. The other approach is to consider purchasing extended care insurance, which can cover all levels of care, from skilled care to custodial care to in-home assistance.

Several factors will affect the cost and availability of extended-care insurance, including age, health, and the type and amount of insurance purchased. You should consider determining whether you are insurable before implementing a strategy involving extended-care insurance. Any guarantees associated with a policy are dependent on the ability of the issuing company to continue making claim payments.

When it comes to addressing your extended care needs, many look to select a strategy that may help them protect assets, preserve dignity, and maintain independence. If those concepts are important to you, consider your financial approach for extended care.

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Citations

1. ACL.gov, July 28, 2020

2. ACL.gov, February 18, 2020

3. AARP.org, November 20, 2020

 

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