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LTC Costs Are Going Up At An Accelerating Pace

A recent Wall Street Journal article was titled “As America Ages, Shortage Of Help Hits Nursing Homes”. With 10,000 Americans turning 65 every day for the next 19 years, where will our caregivers be found? The number of Americans 65 and older is projected to reach 73 million in 2030, up from 40 million in 2010 according to U.S. government projections. Nursing homes and home care agencies are struggling to find enough aides willing to work helping the elderly with such things as eating and bathing. They also face looming retirements in the current workforce, in which one fifth of workers are 55 years old or older.

One reason is that the pay is low, typically less than $12 an hour, injury rates are high, and the work can be physically draining and unpleasant. Nursing aides often are being asked to work double shifts at short staffed nursing homes. The work is challenging with injuries from back or muscle strains more frequent than in the construction industry.

In December alone, 10,922 nursing aide job openings were posted, up 120% from a year earlier. Between 43% and 75% of aides turn over each year. These are the residents’ closest companions and are often first to spot changes for the worse requiring medical attention.

What typically happens to wages when an industry cannot hire the number of workers needed? Wages go up, increasing the cost of care. The costs of long term care have been increasing by 5% to 6% a year over the past 20 years. Costs are likely to increase even faster as the baby boomers require care. With the typical nest egg gaining only about 2% to 4% a year, savings are lagging behind costs, even assuming the savings are left for just long term care.

Traditional long term care insurance has a built in inflation factor which increases the daily or monthly benefit automatically by 5% compound every year. At that rate your benefit will double every 15 years, or double twice in 30 years. While those may seem like high numbers, an $8000 a month nursing home today will be $32,000 a month in 30 years, about the time a 60 year old today hits 90. An assisted living facility costing $3600 a month today will be $14,400 a month in 30 years.

In 1977, Ford Motor Company stopped making the Maverick and switched to the Fairmont. The Maverick could be purchased new for $1995. Yes we have had inflation. Agents who sell the new life/LTC combo products that do not have 5% compound inflation on the entire benefit make money for themselves, but will your Social Security check make up a shortfall of $10,000 or $20,000 a month when care is needed? In many cases, the interest on just a portion of your retirement savings can pay for traditional, inflation protected long term care insurance, giving you the money to pay for your care AND preserve the nest egg as well. That’s like having your cake and eating it too.

Perhaps you should meet with Romeo to investigate what is best for your situation, and only purchase what is really needed. Romeo can be reached at 920 884-3030

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The Long Term Care Guy