INSURANCE
People from different socioeconomic groups have different issues assessing this risk. For example, higher-income individuals tend to overestimate their risks, possibly because they have more access to information or are more concerned about the future. Lower-income groups are more likely to underestimate their risks, which means they might not be prepared for their care needs.
In any case, these findings show the importance of improving public awareness about long-term care and encouraging better financial planning tailored to realistic assessments of care needs.
Understand The Risks
The study offers several ways people can be proactive with their long-termcare needs:
• One is to take time to examine the likelihood they’ ll need long-term care by considering their own age, health status and family history. They can get a clearer picture by looking into actuarial tables or consulting with financial planners.
• They should also avoid extremes in planning. If you overestimate your risks, you may unnecessarily limit your quality of life during retirement by saving excessively for future care. If they underestimate their risks, they could face financial hardship or unmet needs later in life.
• They should consider their socioeconomic factors, recognizing how income and education levels may shape their perceptions. If they have any uncertainty about their long-term-care needs, they should seek tailored advice.
• And they should prepare financially, exploring options such as long-term-care insurance, savings strategies or Medicaid planning to ensure they’ re equipped for potential care scenarios.
There are many reasons people fail to plan for long-term care. One is their natural tendency to avoid thinking about becoming dependent on others. There’ s also misinformation about the risks of needing high-intensity care( more than half of those age 65 and older will need it at some point for a period of longer than 90
Self-Assessed Risk Vs. Actual Risk Of Moving Into A Nursing Home
For respondents observed after the age of 80.
All 27 % 32 %-5 %
Education < High School 24 36-12 High School Grad 27 32-5 Some College 27 32-4 College Or More 31 27 3
Race White 28 32-4 Black 24 33-9 Hispanic 20 31-11
Marital Status
SELF-ASSESSED RISK OF EVER STAYING IN A NURSING HOME
days, according to the Center for Retirement Research authors).
Furthermore, many people lack knowledge about the cost of care and payment options. And most people don’ t like to think about getting older, developing a disability, becoming less independent or needing help with personal care. Unfortunately, there is a reason that the following adage is so often cited:“ Those that fail to plan, plan to fail.”
In a 2021 book I wrote with Kevin Grogan, called Your Complete Guide to a Successful and Secure Retirement, there’ s a chapter on the role of insurance, including a discussion on long-term-care insurance and the benefits of Monte Carlo analysis, which can help you decide on a proper course with long-term care. For example, a simulation might reveal whether your portfolio has sufficient assets to help you maintain your desired lifestyle( with or without long-term care). If one or both spouses in a couple need such care for an
PROBABILITY OF EVER STAYING IN A NURSING HOME
Married Men 26 25 2 Married Women 29 35-6 Unmarried Men 28 36-9
GAP
Unmarried Women 27 41-14
Source: Authors’ calculations using RAND HRS longitudinal file 1992 – 2020v2 and HRS( 1998 – 2020).
extended period, then their portfolio will likely be strained or depleted. A Monte Carlo analysis might reveal what it means to add the incremental costs of a longterm-care insurance policy( and see what its expenses mean for your plan).
The findings of Chen, Munnell, and Gok highlight the critical gap in how households perceive their long-term-care risks. If clients want to avoid financial challenges and lessen the difficulties that come with caregiving in later years, they will need an accurate understanding of what is essential for effective retirement planning, and they should be able to bridge any gaps with better education and resources. By offering these, financial advisors can help clients make more informed decisions that enhance both their financial security and quality of life during retirement.
LARRY SWEDROE is the author or co-author of 18 books on investing, including his latest, Enrich Your Future. He is also a consultant to RIAs as an educator on investment strategies.
48 | FINANCIAL ADVISOR MAGAZINE | JUNE 2025 WWW. FA-MAG. COM