Calculating LTC Funding Needs
This calculator can be used to estimate the funds you may need to pay for long-term care (LTC). The calculator needs a total of seven inputs, including:
- The current age of the person that might require long-term care in the future
- An estimate of the age when long-term care might be needed
- The number of years spent in a long-term care facility
- The annual cost of LTC in today (not the future cost of LTC)
- An estimate of the annual increase in LTC costs over the planning horizon
- Any current savings or funds that are earmarked for LTC
- The annual rate of return the user expects to earn on the LTC funds before they are used
The calculator then provides the user with two sets of outputs:
- The amount of funds required to pay for the LTC being modeled, including the growth of any current funding and the existing funding gap, which is found by subtracting the savings growth from the funding requirement
- The money required to close the funding gap, stated in terms of the funds to set aside on an annual basis, each month, or weekly
Planning for long-term care
Long-term care can involve a wide array of services, all of which are designed to supply the health or personal care needs for a short or long period of time. The aim of this care is to allow individuals to live as comfortably and safely as possible when they are no longer able to perform certain activities on their own. Oftentimes individuals need this kind of care when they have an ongoing disability. This need can arise suddenly after a debilitating illness, or it can develop over time as a person gets older and becomes frailer.
Not everyone needs the services of a long-term care facility during their lifetime; however, when developing a comprehensive financial plan, it is important to understand how much these services might cost – even if they’re provided many years in the future.
Using our LTC calculator and interpreting the results
This calculator requires the user to think through some possible scenarios and do some research into the local cost of long-term care, since both the comprehensiveness of care and geographic location will have an impact on the cost of care. Statistically, the average stay in a long-term care facility is around two and a half years. Depending on the overall health of a LTC candidate, this may not be a good assumption to model. One thing to make note of is the younger someone starts saving for these services, the lower the annual savings will be to create a viable LTC fund. This is true if the rate of return on the LTC funds is higher than the projected annual increase in LTC costs, which is often the case if the funds are invested higher yielding assets like the stock market.
One of the calculator’s critical assumptions has to do with the “funding to close gap” information. The calculations assume money can be saved until the long-term care age. This can mean saving for LTC even after retiring. Realistically, it may be very difficult for someone to set income aside for LTC in their retirement years. What most users of this calculator will learn through their scenario modeling is just how expensive LTC is today and how much more expensive it will be in the future.