Long term care planning is a big issue among baby boomers. As retirement rolls in, the expenses that come with it begin to loom over our heads. For many, the best option is to choose an insurance policy to cover the costs. For some baby boomers, self-insurance seems to be the way to go. However, here’s the truth:
Self-funding retirement and long term care is a popular but risky move to make.
When you choose to fund the day-to-day expenses, unplanned spending, long term care costs, and luxury purchases with the available sources of income you have during retirement, you risk outliving your finances.
However, people still see the appeal of self-funding when planning for long term care because, unlike insurance policies, they do not need to tackle premiums. It removes the worry of not being able to keep up with the payments.
Having “The Talk” with Your Kids. And It’s Not the Birds and the Bees.
Keep in mind that the absence of premiums does not mean you are in the clear yet. The worry that comes with insurance policies gets replaced by the anxiety and fear of managing your own funds. After all, self-funding requires a high level of health literacy, and not everyone ends up succeeding.
What happens when you miscalculate? Who is going to cover your expenses once you have run out of money?
Often, the answer that baby boomers have to these questions is this:
“My kids will help pay for my care.”
However, the situation is not that easy. Long term care costs can be devastating, especially for adult children managing their own expenses and families. So, let’s address one question on baby boomers minds:
“How do I talk to my children about long term care?”
“My kids will care for me when I grow older.”—it rolls off the tongue for many older adults, and it is all too easy to believe that this is the natural flow of events.
However, what happens when your children cannot?
At present, family caregivers shell out $6,954 on out-of-pocket care costs. What if they simply cannot handle the expenses on top of their own?
This is why having a proper discussion about your long term care needs and plans is necessary, no matter how awkward it may seem. Lay down your plans, and be open to their suggestions. Remember to include them in the planning process because miscalculations will take a toll on them, too.
Talk about Their Potential Roles.
Insurance documents, bank details, living wills, Social Security information, durable powers of attorney—these are just a few of the documents you need to prepare before retiring. These help the people around you carry out your wishes when you can no longer communicate them. Some documents allow the people you assign to make the decisions for you.
So who is in charge of what?
Typically, people choose their family members to fill in these roles.
Bear in mind that tension between siblings can surface in these situations. Differences in opinions can easily cause friction, especially when emotions run high.
Also, keep in mind that some people find these types of conversations too much. After all, talking about your parents reaching a stage where they are unable to care for themselves is a difficult topic to digest. Be aware of family members who may be uncomfortable, and walk them through it.
Remember to keep a level head and to honest about your intentions. At the end of the day, the goal is effective shared decision-making.
Discuss the Risks.
As we have mentioned earlier, self-funding for long term care can be a big risk to take. The costs are increasing rapidly over the years, and baby boomers are changing the way retirement works.
As the typical first line of defense, they need to understand the possible repercussions of your decision to self-fund.
Reports show that approximately 43.5 million caregivers are housed in the United States. On top of that, statistics point out that 50% of caregivers are adult children caring for aging mothers.
This may put them at risk socially, financially, physically, and mentally. Many family caregivers are even experiencing problems at work because of the care demands.
Remember to discuss this as a family.
Encourage Them to be Proactive about Their Own Future Care Needs.
You have firsthand experience of how difficult long term care planning. This is why you need to encourage your children to be proactive about their own plans.
Remember that so many older adults are still confused about crucial information about retirement and long term care. In fact, 4 out of 10 Americans age 40 and older still think that Medicare will pay for their long term care costs. On top of that, one-third of them shared that they not done anything to plan for their long term care needs.
You can protect your children from this.
For starters, encourage them to start early. Help them find long term care coverage early because these are less of a financial burden when you purchase at a young age.
To learn more about how you can help your children secure their own future, here are retirement planning guidelines by age that we have found to be useful.