How long-term care planning can help your loved ones

Making plans for your care later in life is a valuable gift you can give your family.

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Key takeaways

  • Relying on family to provide care can place an emotional and financial burden on loved ones.
  • Insurance can help maintain quality of life for both you and your family should you need long-term care yourself.
  • Your financial advisor can help you plan for your long-term care needs.

The COVID pandemic has erected new barriers of how family members care for their aging loved ones. Our older relatives still need our help, and hopefully, we can soon return to the days of spending quality time with family and friends.

Andy Reed, PhD, Fidelity's Vice President for Behavioral Economics, uses insights from behavioral economics and psychology to understand how people make decisions about wealth and health. He says psychological factors may cause people to postpone planning for a variety of important needs including saving for retirement, college savings, and even for long-term care needs. "People tend to feel anxious when faced with uncertainty, so they often avoid making plans or decisions when the potential outcomes aren't particularly clear," he says.

In addition to the desire to avoid uncertainty, the desire to care for family and other loved ones is also a motivating force during the middle years of many people's lives. Planning for long-term care before it is needed may satisfy both their desire for certainty and their desire to avoid burdening loved ones with the costs and challenges of caregiving.

As we age, "generativity" plays a bigger role

Between the ages of 40 and 65, emotionally healthy adults shift their attention from their own needs to the needs of others, typically their families, and enter a stage that psychologist Erik Erikson called "generativity."

"Generativity is characterized by emphasizing commitments to your family and focusing on what you can do for the next generation," says Reed. People who feel this motivation can help their families by taking steps to prevent burdening them with the financial and personal costs of providing long-term care.

The more you know

One first step in reducing uncertainty is to improve your understanding of what long-term care involves and what it costs. Reed points out that many people at this stage of life "deliberately avoid thinking about the hazy, distant future and the negative consequences it may entail. But gaining clarity and preparing for the long term is an important part of securing their family’s financial future and achieving the generativity goals they hold dear."

That is why it's important to know how to recognize early indicators that care might be needed. One sign to watch for is increased difficulty performing the "instrumental activities of daily living"—or IADLs. These activities are integral to independent living, including housekeeping, managing money, taking medications, preparing meals, shopping for the household, communicating via phone and email, caring for pets, and being able to respond to urgent situations. Difficulties with these activities typically precede the need for long-term care assistance.

Another part of understanding long-term care is to know the varieties and costs of long-term care as well as what long-term care insurance, regular insurance, and government insurance programs cover. According to data from Genworth Financial, the annual national median cost of hiring a home health aide—the most common type of care arrangement—was $54,912 in 2020.

Read Viewpoints on Long-term care: Options and considerations

Higher levels of care, including assisted living facilities and nursing home care, cost more. For example, Genworth Financial estimates the national average for a year's worth of care in a private room at a nursing home in 2020 to be $105,850. These are not costs for medical care, but rather for help with activities of daily living such as bathing, dressing, eating, toilet use, and mobility that people may need to meet their personal needs.

Visit: What is long-term care? 

Faced with these costs, some families might prefer to shoulder the burden of caring for a loved one themselves. Almost seven out of 10 people surveyed by the Nationwide Retirement Institute said they would prefer to receive long-term care at home and rely on a family member for care but would not expect a family member to provide long-term care if they were unable to compensate them.* Indeed, doing so places a significant burden on family members who spend 56 hours per week as caregivers on average. In addition, Genworth's research shows, even though 82% of caregivers appreciated the opportunity to care for loved ones and were proud to do it, many find that doing so places significant demands on their lives—and finances—and often requires sacrificing their own families and careers.

Read Viewpoints on How to take care of aging parents and yourself

Professional care can be a substitute for relying on family. While professional long-term care is expensive, using insurance as part of a plan for care can make a difference in everyone's quality of life as a person ages. The key to good decision-making is to weigh a family's needs against the costs and potential benefits of the options.

In addition to traditional long-term care insurance policies, newer "hybrid" policies are designed to provide a benefit even in the event that the policyholder does not file a claim. Be sure to ask about these options when you meet with your financial advisor.

Questions to ask your financial advisor

Long-term care can be confusing. A financial advisor can help you and your family choose the best way to provide and pay for your long-term care. Ask your advisor these questions:

  • What will happen to my current retirement plan if I have a long-term care event?
  • Could I afford to self-insure, and how would I go about doing that?
  • Are preexisting conditions covered?
  • What is the waiting period if I need long-term care?
  • How long does long-term care insurance last and what does my policy cover?
  • How much does long-term care insurance cost per year?
  • What happens if I don't need to go to a nursing home or die early?
  • Can my spouse take over my policy?
  • Is there a maximum policy benefit?
  • Will benefits increase with inflation?
  • Can my heirs inherit the remaining value of my policy?
  • Can a hybrid policy offer better financial protection for my family?

Find out more about long-term care.

A thoughtful long-term care coverage decision is all about balance—weighing what you can afford, the kind of care you expect, and the risks you might face. It is not just a financial decision because using insurance may help meet the emotional and physical needs of caregivers such as family members and friends. Made carefully, it's a decision that may help provide you with some peace of mind for your retirement.

Next steps to consider

Access Fidelity tools to get retirement income planning help.

Review eligibility, choices, costs, and how to sign up.

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