Long-Term Care Planning Decisions to Make Now Before Retirement
You might be thinking about retirement and, hopefully, have a retirement plan, but if you are like most people, you have paid little attention to the biggest involuntary risk any of us will face in life: the need for long-term care.
Retirement planning goes beyond envisioning future travel and leisure activities. You will need a steady income and have bills to pay. All these enjoyable pursuits come with costs, and planning how you'll cover them is essential.
Of course, aging issues like long-term care can derail your plan.
You probably aren't worried about long-term care since it will never happen to you, but are you sure about that? The likelihood of needing long-term care at some point in your lifetime is substantial. The cost of long-term care services is increasing rapidly, and the physical, emotional, and financial burden it will place on your loved ones will forever change their lives.
As you age, you face a higher risk of injuries and disabilities that may require care. According to the Centers for Disease Control and Prevention (CDC), two in five adults aged 65 and over are affected by disabilities.
Of course, as you get older, your risk of needing help with everyday living activities or suffering from dementia increases. The U.S. Department of Health and Human Services (HHS) estimates that over half (56%) of Americans turning 65 today will develop a need for long-term services.
Long-term care is a risk you really don't want to ignore, and the impact of future long-term care on your family and finances will alter your retirement.
Doesn't Health Insurance or Medicare Cover Long-Term Care?
You might think planning for long-term care is unnecessary since the government or health insurance will pay for it. The problem is this isn't true.
Health insurance, including Medicare, only pays for short-term skilled care. These plans will not pay for long-term care. Medicaid will only pay for long-term care for someone with limited financial resources.
Long-Term Care Insurance is often misunderstood as being unnecessary, but it plays a critical role in a comprehensive retirement plan by covering costs that health insurance and Medicare do not. Health insurance and Medicare only pay for short-term skilled care, such as rehabilitation after a hospital stay, exposing you to the high and rising costs of long-term care services like custodial care at home, memory care, and assisted living facilities, in addition to skilled nursing at a nursing home.
If you ignore long-term care planning as part of your retirement plan, you will be responsible for paying for long-term care until you have little money left. Otherwise, your family will become caregivers, you will pay for care from income, or you will become dependent on Medicaid.
Remember that being a caregiver is not easy for professionals, much less for untrained and unprepared family members. Do you want your daughter for example, to be responsible for bathing you, personal hygiene, and other living activities?
The answer is no; you want your daughter and other loved ones to maintain their careers and personal responsibilities, allowing them time to be family instead of caregivers.
Things to Consider
It is best to plan for the future costs and burdens of aging before you retire; however, if you have reasonably good health, affordable planning options are available in your 60s and beyond. It is best and much more affordable to start planning in your 40s and 50s.
How Much Money Do You Have?
How will you pay for future long-term care? Start by considering your current income and savings, including money in qualified retirement accounts. Generally, if you have less than $50,000 in assets, Long-Term Care Insurance may not be appropriate, although it could be if you have a guaranteed defined pension.
Don't even think of self-funding unless you have more than $2,000,000 in assets outside of real estate. Even if you have that or more, Long-Term Care Insurance would be more efficient and provide tax advantages.
If you have modest savings, a Partnership Long-Term Care Insurance policy would be your best option. With a partnership-certified LTC Insurance policy, you get additional dollar-for-dollar asset protection.
Few financial professionals are aware of the Partnership Program, though most states have active programs in place. A qualified LTC Insurance specialist can guide you through the benefits of the Partnership Program, ensuring that you will never lose all your money, even in a catastrophic long-term care situation.
Where Will You Live in Retirement?
Long-term care costs vary dramatically depending on where you live and even within a state. You must understand the current and projected cost of care in the decades ahead. Once you know this information, you can design a Long-Term Care Insurance to address these costs.
Be sure to use the LTC NEWS Cost of Care Calculator to find the costs in your state and metro area. For example, home care costs in Albany, Georgia, are less expensive than home care costs in Sacramento, California. The current costs in Albany, Georgia, for in-home care, based on a 44-hour week, average $3,937 per month. However, in Sacramento, California, the same amount of home care averages $6,225 a month.
According to LTC NEWS, nursing homes are the most expensive (although the least used) type of long-term care. Other care options are usually more affordable. Here are the national averages according to the LTC NEWS survey of long-term care costs:
- Home health aides currently average $5,041 per month. LTC NEWS projects the cost to increase to $8,589 monthly by 2044.
- Adult day care currently costs an average of $1,719 per month. LTC NEWS projects the cost to increase to $2,929 by 2044.
- Assisted living base costs average $4,509 per month. Surcharges, which averages anywhere from $500 to $2000, are added to the base cost, depending on your needs. LTC NEWS projects the base cost to increase to 7,682 monthly by 2044.
- Skilled nursing homes currently average $9,403 per month for a private room. LTC NEWS projects the cost to increase to $16,020 monthly in 2044.
Remember, the cost of care will vary depending on where you live. But your LTC policy does not have to cover ALL the future care costs. Many leading Long-Term Care Insurance specialists recommend using some of your future social security income or pension income, along with the LTC Insurance benefit, to pay for care without changing your lifestyle or burdening those you love.
This type of strategy in your policy design can save you a lot of money in LTC premiums. However, you get to decide for yourself the amount of LTC Insurance benefits you wish to have in your policy.
How Much Money Can You Budget for Premiums?
Long-Term Care Insurance comes at a cost, just like the future long-term care services you may need. Budgeting an amount you are comfortable with for your LTC policy is essential.
Good news: LTC Insurance is custom designed and is more affordable at younger ages. Even a small benefit can make a huge difference for your loved ones. Premiums are calculated in several ways:
- Age
- Gender
- Health
- Family history
- Type of policy (traditional, hybrid, short-term cash indemnity)
- Initial monthly or daily benefit (to pay for care)
- Initial benefit account (to pay for care)
- Inflation benefit
- Premium payment mode (annual, monthly, etc.)
Premiums and underwriting rules vary dramatically depending on the insurance company.
What Type of LTC Policy Do You Want?
Generally, you will want to limit your research to a policy that meets federal guidelines under Section 7702(b) of federal code. When you have a policy that meets federal guidelines, you will have guaranteed consumer protections, regulated benefit triggers, and tax benefits.
You have two choices: a traditional (often partnership-certified) LTC policy. A traditional LTC policy is the type of policy most consumers purchase. However, hybrid policies have become popular in some situations. A hybrid policy combines a life insurance or annuity policy with a qualified rider for long-term care.
Short-term cash indemnity policies are also available with less conservative underwriting rules - Don't Be Fooled by the Name - New Policy Type Can Be Valuable Answer for Long-Term Care Expenses.
Be sure to discuss these options with an experienced Long-Term Care Insurance specialist representing all the top-rated insurance companies offering long-term care solutions. Most financial advisors and general insurance agents often only have one or two companies to select from.
Many financial advisors only offer hybrid policies. A specialist will have complete knowledge of all the available options, tax benefits, and underwriting rules.
What Insurance Company to Select
Does it matter what insurance company you select for your Long-Term Care Insurance? Insurance companies are regulated, and LTC Insurance is highly regulated by both the states and the federal government. However, you want a company with an A.M. Best, Standard & Poor's of at least an A.
Your Retirement Plan Needs a Long-Term Care Plan - Now
The costs and burdens of long-term care can significantly impact your retirement. Without proper planning, the financial burden of care can change your lifestyle, affecting your income and depleting your savings.
Without planning, you may be forced to make difficult choices about your lifestyle, jeopardizing your financial security. Failing to plan now won't just impact your finances; it will also affect the lives of your children and grandchildren, as they may have to step in as caregivers or deal with the depletion of your assets.
The rising costs of long-term care services, whether for in-home care, assisted living, or nursing homes, can eat into your retirement income, delete your assets, and leave you with fewer resources to enjoy your retirement years or reduce or eliminate your legacy.
Planning is much easier when you are not in crisis mode. You have more ways to plan when you enjoy better health, so don't delay. Otherwise, your loved ones will deal with the crisis on their own.