Wall Street Steward Blog

Couldn't Care Less About Long Term Care

Continuing Education.  A very necessary thing, but an even more boring thing.  Recently I completed 24 hours of insurance CE over the course of 3 grueling days.  Despite the topic being horrifically boring, the instructor did a great job of teaching and kept the sessions interesting by including humor and personal stories.  Thanks to him, I learned quite a bit.

Long Term Care.  This is a topic that is almost off-limits in the investment world…most of us are taught that “those that need it cannot afford it and those that can afford it do not need it.”  In many cases, that is true, but in others, it is not the case at all.  Either way, before this CE session, I could not have cared less about long term care/nursing home issues.

I will leave it up to you and your advisor to determine whether or not you should buy long term care insurance – this article is not about that.  Instead, I want to focus on what it will COST going forward.

Take a deep breath if large numbers shock you.  This one is staggering.

All of the figures below were provided by Michael Kill of P.A.I.R., Inc.  I have read other articles that back him up on these figures, but I am too lazy to find them and reference them here.  So, if you think they are inaccurate, then feel free to call Michael and explain to him that you know more than he does, even though he has been in this business for 60 years.

Average annual cost of a nursing home:  $65,000-$70,000 per year
Average length of stay in a nursing home:  2.5 years
Average age of people entering a nursing home:  82.5 years old
Average annual inflation rate of nursing home costs:  7.2%

Like I said, if you doubt these numbers…call Michael.

The average cost shocked me.  $5,625 per month!  Over 5 G’s per month?  How many of you have mortgage payments that approach that?  A 30 year mortgage on a million bucks would run only $4,800 per month (according to bankrate.com).  That is A LOT of money, and that is the average.

Then, the average stay also floored me.  My guess was 7-8 years.  30 months?  I have mayo in my fridge that is older than that.  Shhhh, don’t tell my wife. 

The average age of entry and the inflation rate were about what I had guessed.  Inflation in general has run 3-4% per year depending on which source you trust and what time frame you use, and I assumed it would be double for nursing homes.

Here is where it gets interesting.  Michael (the CE instructor) asked for someone in the room that was 30 years old.  He had few volunteers, partially because some of us were A S L E E P and partially because the young people that WERE there were not exactly extroverts…let’s just leave it at that.  This was his example:

30 year old person
Needs to enter nursing home at age 80
Cost would be $67,500/year in today’s dollars
7.2% inflation rate

So, if everything stays static, what will that nursing home cost that 30 year old in 50 years (age 80)?  He used the rule of 72 to work it out, but I will run the exact figures for you.

$2,182,946.  Per year.  (PV=67,500, RATE=7.2, N=50, solve for FV)

Yes, incomes will rise.  Yes, our GDP will grow.  But, can you really afford to pay $2 million per year for someone to take care of you when you are older?  Me either. 

What if the inflation rate miraculously gets cut in half (doubtful) to 3.6%?  Even then, it would cost nearly $400k (395,632) per year for nursing care in 50 years.

For those of you who are saying to yourself “that is what Medicaid is for,” please realize that the only time Medicaid kicks in is after you are broke.  Would you really trade your life savings for unlimited nursing home care?  Me either, but if something does not change, we might be forced to. 

What is the lesson here?  For me, there were several:

  1. Everyone that can afford it should own some sort of a LTC policy

  2. People need to save as much money as they can for retirement

  3. We need an intervention when it comes to the inflation rate of medicine (7% is a joke)

  4. Be nice to your kids, because they will likely be taking care of you, or at least paying for it

  5. None of us will ever be able to retire (not true, but it feels that way)


Needless to say, I no longer have a “couldn’t care less” attitude about long term care.  That lesson alone was worth the cost of the CE torture.

Thanks Michael.