Latest / Inflation and Your Money with Fexingo: Protecting Purchasing Power and Beating Inflation / How Inflation Eats Your Long-Term Care Insurance
Transcript
- Lucas: So Luna, I was looking at the July jobs report that came out on Friday, and the market's now pricing in lower odds of a Fed hike in September. But the inflation data is actually cooling — Core CPI dipped slightly, and the ten-year breakeven is at 2.25 percent. So we're in this weird spot where the Fed might pause, but the cost of everything from groceries to nursing homes keeps climbing. Luna: Yeah, I saw that. The market's up, gold's up, but the average person's wallet doesn't feel any lighter. So what's the angle today? I'm guessing it's not another episode about your emergency fund. Lucas: Right, we've done that. Today I want to look at something that most of us don't think about until we're staring at a hospital bill or helping a parent: long-term care insurance. And specifically, how inflation quietly eats the benefits of a policy you might have bought years ago. Luna: That's a good one. And honestly, it's a topic that feels like a financial black box. We hear 'long-term care' and we think 'old-age stuff,' but the numbers are daunting. So where do we start? Lucas: Let's start with the sticker shock. According to industry data from 2025, the average cost of a private nursing home room is now over $120,000 a year. And that's not even the most expensive option — assisted living is cheaper, but home health aides add up fast. Now, the common advice has been to buy a policy in your 50s, and many policies include an inflation rider that increases your daily benefit by 3 to 5 percent annually. But here's the catch: that rider might not be enough. Luna: So even with the rider, you're still underinsured? That seems… worrying. But before we get into the math, I have to say — this show has genuinely helped me think about my own budget and savings, and if you're listening and you've gotten value from our conversations, buying Lucas and me a coffee at buy me a coffee dot com slash fexingo is a small way to keep this ad-free. Anyway, back to the nursing home costs. Lucas: Exactly. And the math is brutal. Let's say you're 55, you buy a policy that pays $200 a day for nursing home care, and you have a 3 percent inflation rider. Over 30 years, that daily benefit would grow to about $485 a day. But care costs are growing at closer to 4.5 to 5 percent annually in many regions. So by the time you need care at 85, the actual cost might be $600 a day or more. You're short by $115 a day — that's over $40,000 a year out of pocket. Luna: Wait, so the rider lags behind real cost growth? That seems like a design flaw. And I imagine the 5 percent riders are more expensive, so people opt for the 3 percent to save on premiums. Lucas: Right, and there's another trap: many policies cap the total benefit. So even if your daily benefit grows, the maximum lifetime payout might be a fixed dollar amount — say $500,000. With inflation, that pot of money buys fewer and fewer days of care. I've seen policies where the benefit pool is exhausted after three years of care when it was designed to cover five. Luna: That's terrifying. So what's the alternative? I've heard about hybrid policies that combine life insurance with long-term care. Are those any better? Lucas: They're becoming popular. A hybrid policy essentially lets you access your death benefit early to pay for care, and if you never need it, your beneficiaries get the death benefit. The inflation protection is often built in differently — some offer a 3 percent compound rider, others let you buy additional benefit increases. But the premiums are higher, and you're tying up a chunk of money that could be invested elsewhere. Given the current Fed funds rate at 3.63 percent, those premiums are actually a bit more expensive than they were when rates were near zero, because insurers earn less on their investments. Luna: So the rate environment matters. And I guess the timing of when you buy matters too. Buying at 55 versus 65 — how much difference does that make? Lucas: Huge. The American Association for Long-Term Care Insurance says a 55-year-old might pay around $2,500 a year for a good policy, while a 65-year-old could pay double or triple that. And you're locking in a younger health status, which is crucial. But the trade-off is you're paying premiums for longer. The key is to buy when you can afford it and before any health issues crop up. Also, some states offer partnership programs that protect assets if you exhaust your policy benefits, which is worth checking. Luna: And I imagine not everyone needs a full policy. What about self-insuring? We've talked about how inflation erodes cash, so I'm guessing that's risky too. Lucas: It's risky. If you have a couple million in assets, you might be able to self-fund, but the cost of care is rising faster than most people's investment returns. I read that a 2026 study found that a 65-year-old couple retiring today could expect to spend over $300,000 on long-term care expenses in today's dollars. And with inflation, that number balloons. So for many, a policy with a solid inflation rider is a hedge against that tail risk. Luna: So what's your takeaway for our listeners? How should they approach this without panicking? Lucas: First, don't wait until you're 70. Second, read the fine print on the inflation rider — is it simple or compound? Is there a cap? And compare the cost of a 3 percent rider versus 5 percent; sometimes the 5 percent is worth it if you can afford the premium. Third, look at hybrids if you want the death benefit safety net. And finally, consider your family history — if your parents lived into their 90s, you're more likely to need care. It's not a fun conversation, but it's better than being caught off guard. Luna: That's solid advice. And I guess it ties back to the broader theme of inflation eating your savings — this is just another way it sneaks in.