Private financing of long-term care: income, savings and reverse mortgages

To what extent would older Europeans be able to pay for their long-term care needs, out of their income and assets, if they had no access to informal care or public insurance? To answer this question, we build a microsimulation model and estimate the disability trajectories of those currently aged 65 or older in nine European countries using the Survey of Health, Ageing and Retirement in Europe. We focus on the potential role of reverse mortgages in home equity liquidation. According to the simulations, 57% of people 65 and over will experience disability. Conditional on need, care will be required for 4.4 years on average. Of those with no partner, 6% of dependent individuals could pay for their long-term care out of their income alone, 22% if they used all their savings except their home. The proportion would double to 49% if they took out reverse mortgages on their main residence. However, one-quarter would be able to finance less than 10% of their long-term care expenses.