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Understanding Long-Term-Care Risks
It’ s hard to perceive the risks that you’ ll need help in your later years. By Larry Swedroe
EVEN PEOPLE WHO HAVE WELL-DEVELOPED INVESTment plans have seen these fail for reasons that have nothing to do with the investments themselves. For instance, someone’ s plans could fall through because a family breadwinner died prematurely and there isn’ t enough life insurance for the family. Or a client could become involved in an auto accident, find a large judgment imposed on them and find out they don’ t have sufficient liability insurance or an umbrella policy.
This is why it’ s critical to integrate an investment plan into an overall estate, tax and risk management( insurance) plan. One all-too-often overlooked component of this is long-term care.
This is a significant concern for older adults, as many will require assistance with daily activities or cognitive support later in life.
Earlier this year, a group of authors with the Center for Retirement Research at Boston College set out to ask how well people perceive their risks of needing long-term care. This topic is crucial because misjudging LTC needs can lead to financial strain or unmet care requirements.
The study is called“ Do Households Have a Good Sense of Their Long-Term Care Risks?”( It was written by Anqi Chen, Alicia Munnell and Nilufer Gok.) The authors looked at how accurately people perceive their long-term-care risks and how these perceptions vary across socioeconomic groups.
Using data from the Health and Retirement Study sponsored by the University of Michigan, the researchers compared subjective self-assessments of long-term-care risks with objective probabilities. They focused on two specific measures:
• The perceived risk that a client will have to move into a nursing home— in other words, people’ s expectations that they will need institutional care; and
• A client’ s perceived risk of their own cognitive limitations— whether they’ ll lose the ability to manage their own affairs because of cognitive decline.
By analyzing these perceptions, the authors aimed to uncover whether individuals overestimate or underestimate their long-term-care needs and find out if any of their misconceptions could harm their financial and care planning.
Mismatches The study revealed some critical insights. One is that there’ s a mismatch between perceptions and reality. Some older adults overestimate their likelihood of needing intensive care in the future, while others underestimate it. Those who overestimate may unnecessarily restrict their retirement spending to save for future care that they might not need. But those who underestimate won’ t have enough for care, and they could later face financial challenges— for instance, they might have to deplete their assets to qualify for Medicaid.
JUNE 2025 | FINANCIAL ADVISOR MAGAZINE | 47