Is Long-Term Care Insurance Right for Your Retirement Plan?
It’s important at the outset to separate the concept of long-term care (LTC) from long-term care insurance. The first is an unforeseen health event, often out of your control, requiring an extended duration of care, and the second is one of several strategies to mitigate the risk of exhausting your nest egg if you encounter that event.
Let’s start with some statistics.
Almost 45% of folks over the age of 65 will experience a health event requiring long-term care lasting one year or more.
The average long-term care event is 3 years.
The average cost of care is over $100,000 per year.
The cost of care is estimated to rise almost 20% by 2030 and 60% by 2040
At the end of the article, you’ll find links to the resources I used in my research on long-term care.
Stress testing your financial plan against unexpected events out of your control is a must. If you don’t have the assets to weather these unpredictable situations, consider changing your financial actions. That might include long-term care insurance. If you recollect a parent or someone close to you needing care that went well (or maybe didn’t), that influences your perspective and what you think you should do. Be aware of your biases and listen to other perspectives that challenge yours so you make the wisest decision. We’ll walk with you through the decision-making process, equipping you with the knowledge and options available.
Who Needs LTC?
These are some situations that bring rise to needing long-term care:
Persistent Medical Treatment
Hospice Care
Memory Care, including Alzheimer’s
Those Who Live Alone
Poor Personal Health
Experiencing a Debilitating Accident
Who Provides It?
Care often comes from family members or friends free of charge. What a blessing to have those in your life that do this for you. It’s not always best to rely on family or close friends to provide this care, though, because it can be emotionally, physically, and financially taxing, even though they are glad to give back to you in this way. Some care requires skills they may not possess or feel confident in delivering. Alternatives include hiring a home health care aide, nurse, or physical therapist several times weekly. Someone close to me has done this, and it’s been a complete blessing. The last provider is a facility where several caregivers might rotate throughout the day, and you’re paying for round-the-clock services with varying levels of support.
Where Can I Get Care?
At Home: It’s possible that most of your needs can be taken care of in the comfort of your own home. The familiarity and convenience of being in your own place can’t be underestimated. Having someone come to your home is also more cost-effective than being in a facility. You might, however, reach a point where being at home can’t address your level of care or provide the safety you need.
Daytime Services: Organizations provide opportunities for activity and socialization and someone to help them through daily life or offer their regular caregiver respite.
Assisted Living/Nursing Home: This is any facility you move to outside of your home that provides the services you need for daily living. I’m lumping assisted and nursing facilities together because you could start with a less intense level of services while you’re still capable of most activities and later transition to a higher level of care, including more demanding medical monitoring and intervention. A higher level of care comes with increased costs.
Ways to Fund LTC Needs
Self-Funded
If you’ve built a nest egg to provide for your caretaking and medical needs without exhausting your financial resources, you can simply self-fund for LTC. The nice thing about self-funding is that you are in total control of what, who, and where.
Government Funded
Medicare will fund a portion of long-term care for up to 100 days. Medicare picks up the first 20 days, shares the cost with you from day 21 – 100, and then leaves you with 100% of the responsibility after that. Medicaid is a last-resort option for long-term care and is intended for those who have spent through or never had enough assets to care for themselves. As such, the program has strict asset and eligibility requirements. Sometimes, it can be challenging to find an available Medicaid facility and the quality of care you expect.
Long-Term Care Insurance
Insurance is a transfer of risk, plain and simple. If there’s no risk to transfer or you want to assume all the risk, you don’t need insurance. Mike Heatwole wrote about various long-term care insurance options here, so pop over to that post to learn more. Some dismiss insurance out of hand, but you won’t feel that way if the unexpected occurs and you don’t have the financial wherewithal. So why might you want to transfer risk to an insurance company by obtaining a policy? You could wish to:
Preserve retirement savings by covering care costs so your heirs have more to inherit.
Reduce stress for family members who would otherwise have to provide care or financial support.
Provide peace of mind when planning for your future.
It is difficult to qualify for a policy if you are older or in poor health. The sweet spot starts around age 55 and typically costs more for women than men because women live longer. On average, men will pay approximately $1,700/yr and women $2,675/yr for a three-year, $4,500/mo. benefit policy.
Self-Funding & LTC Insurance
You’ll probably find it doesn’t make financial sense to cover your entire long-term care cost with insurance. That’s where combining self-funding and insurance can be the right solution. We can visually illustrate for you various blends of insurance and self-funding until we find the right mix of out-of-pocket cost and risk transfer, and then help you shop for the best coverage.
More times than not, in a marriage, spouses have different perspectives about the importance of having insurance to provide for long-term care. It’s important to listen to each other and come to a decision that you are both happy about. It could mean that only one of you buys a policy, especially if there’s a big age gap between you. We love facilitating a disarming conversation with our clients about these challenging topics and seeing you come to a unified decision.
How We Help You Plan
It starts with a comprehensive view of your vital financial and family numbers. We need to stack up all your assets, income, expenses, and debt to get a baseline of where you stand. That helps define your capacity for taking on the risk of a long-term care event. Then, we spend time asking questions to uncover your values and goals related to how you want things to go down if you experience an event needing LTC. Where do you want to live? Who do you want to care for you?
With this picture complete, we can see how the numbers stack up in the best-case scenario without a long-term care event. Then, we introduce curveballs into your plan to stress test it and discover the degree of risk of exhausting your assets. These curveballs are called “what-ifs” and are largely out of anyone’s control. For example, we might simulate a long-term care event for George at age 80 for three years, costing $144,000/yr for a private room in a nursing home, and see how that impacts the long-term success of your financial plan. Stress testing allows us to introduce strategies to cover the success gap and give our clients confidence and peace.
We have clients that run the gamut. Some have plenty of assets to weather any event that will come their way. Others have a pointed risk of exhausting their assets if misfortune strikes. We start exploring alternative strategies and the advantages and disadvantages of each. It might mean that we need to check your eligibility for insurance and obtain the preliminary costs for a policy. It could be that we recommend you sock away a specific amount of monthly income into an investment or segregate a portion of an existing account for long-term care and invest accordingly. We help you make the right decision based on your goals and values. Clients make the choice with eyes wide open. Contact us to start a conversation with one of our advisors about whether long-term care insurance is right for your retirement plan.
https://www.consumeraffairs.com/health/long-term-care-statistics.html
https://acl.gov/ltc/basic-needs/who-will-provide-your-care
https://www.aaltci.org/long-term-care-insurance/learning-center/ltcfacts-2020.php#2020costs
This commentary reflects the personal opinions, viewpoints, and analyses of The Dala Group, LLC employees providing such comments. It should not be regarded as a description of advisory services provided by The Dala Group, LLC or performance returns of any The Dala Group, LLC client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data, or any recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The Dala Group, LLC manages its clients’ accounts using various investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
