Retirement is about doing what you want, such as traveling, spending time with grandchildren, or enjoying hobbies, when you want. There may come a time though when certain tasks, maybe even basic needs, become difficult and help is required. That type of care can drain your savings. You can relieve the burden and financial stress with long-term care insurance.
FACT: 70% of Americans over the age of 65 will need long-term care
Don’t assume that you won’t need long-term care. Think about your family medical history, your parents or grandparents, aunts, or uncles. You’ve most likely had at least one relative, probably more, require long-term care at some point. The odds are not in your favor.
FACT: The average length of time a senior adult will need assistance with activities of daily living is 3 years
Most people believe that even if they need care, it probably won’t be for long. Long-term care doesn’t just mean a nursing home. It can take different forms such as home health care or an assisted living facility. You need to assume that you will need long-term care.
FACT: Long-term care takes a lot of cash
Health care costs, including assisted living or nursing care, will most likely be one of the largest expenses in retirement. Getting old and breaking down costs money, especially if you make it into your nineties. Everyone knows the costs are significant, typically $90,000+ annually to live in a private facility.
FACT: Nothing is certain except death and taxes
I chuckle when I read financial planning articles say that long-term care is a difficult discussion to have with clients due to the subject matter. No, it’s not. I’m gonna die, you’re going to die, we’re all gonna to die, hopefully a long, long time from now. Not discussing it doesn’t make that fact go away, and tiptoeing around long-term care doesn’t do anyone any favors.
You focus on saving enough for retirement, so you don’t have to worry about outliving your savings. Long-term care insurance can make your money last as long as you do, and provide for your spouse. If your advisor is afraid of having “the discussion,” you better find yourself another one.
FACT: Approximately 10% of individuals over 65 have long-term care insurance
Long-term care insurance sounds like an easy decision. Seems like a no-brainer, right? If only it were that simple. The fact is, very few people buy long-term care insurance due to the cost.
Over the past twenty-five years, insurers have faced rising life expectancies and increasing health care costs, and have decided to get out of the business. Fewer purchasing options and rising costs have meant higher premiums.
You’re raising a family, saving for retirement, protecting yourself with life insurance and disability insurance – there’s only so much money to go around. Long-term care seems so far away that it’s easy to put it on the back burner.
FACT: The earlier you purchase Long-Term Care, the lower the premium
Most people don’t buy LTC insurance until they’re in their 50s. That’s because that’s when they can most likely afford it, and the old body doesn’t work like it used to. These long-term care thoughts start creeping in.
There are two problems. First, the longer you wait, the higher the premium. Second, the older you get, the more likely it is you’ll have a medical condition that would make you unable to qualify for long-term care insurance.
FACT: The average policy pays out $175 per day
You don’t have to buy the best top-of-the-line policy. Review what you can afford. Long-term care policies come in many shapes and sizes. They include:
- The Daily Benefit Amount: The amount the policy will pay per day.
- Premium Caps: How much the insurance company can raise premiums.
- Elimination Period: Typically a long-term care policy kicks in after 90 days.
- Inflation Rider: What long-term care costs now vs. in twenty years will be very different. An inflation rider will keep up with the increasing costs.
- Benefit Period: Long-term care insurance policies have either a defined benefit period or a maximum lifetime benefit. Typical periods are between two to five years.
You have significant wiggle room within a policy. Adjusting some of the provisions will have a considerable impact on the premiums. You can go with the top-of-the-line policy that covers everything, or you can split the costs with what you can afford.
FACT: Most people self-insure
There is no magic number when I would say you don’t need long-term care insurance and can self-insure instead. It depends on your total assets, age, debt, retirement expenses, health, and what you want to leave your heirs.
Since the overwhelming majority of people do not purchase long-term care, they choose to self-insure. Right or wrong, at a certain age there is no turning back.
FACT: Medicare won’t cut it
There is confusion regarding what Medicare covers. It will partially cover up to 100 days of services at home or in a skilled nursing facility, but only after a hospital stay of at least three days, and only if you need necessary daily medical attention. A good example of such care would be the care required after a hip replacement.
On the other hand, those who need long-term custodial care, assistance with daily living activities such as bathing, eating, etc., are out of luck. Medicare does not cover long-term custodial care.
FACT: Medicaid does cover long-term care, just maybe not the type you want
Medicaid is designed to cover individuals who have low income and few assets. Unlike Medicare, however, Medicaid pays for long-term custodial care services provided in nursing facilities that are licensed and certified as Medicaid nursing facilities. To qualify for Medicaid, you need to meet income and asset requirements.
Obviously, your choices are limited, and the level of care, while adequate, may not be what most people would prefer.
FACT: 43.5 million American adults served as unpaid caregivers in 2015
I always joke and ask our boys if they’ll take care of me when I’m old. The answer, of course, is no, but they will give me a ride to the nursing home. All joking aside, there is a significant amount of time and money spent by family caregivers.
It’s clearly a burden, but most people find it rewarding and prefer the caregiving role to the alternatives.
Long-term care planning must be a part of your financial plan. It’s an unfortunate fact that most of us will require daily care in some way, shape, or form. Preparing for the cost, preserving your savings, and saving your loved ones from the burden of care are our goals. Long-term care insurance may be able to assist in providing that security.
**Statistics courtesy of the U.S. Dept of Health and Human Services, Kaiser Family Foundation, AARP Public Policy Institute, and the American Association of Long-Term Care Insurance.
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