Long Term Care Considerations – Part 1
- Seven out of ten people, regardless of age, will need Long Term Care (LTC) at some point in their lives and that care will last for an average of three years.
- Medicare and Medicaid do not cover the cost of getting non-skilled assistance with activities of daily living – a major expense for seniors living independently.
- LTC planning is designed to maintain a person’s independent lifestyle as they age while affording them assistance with daily activities.
- LTC can be expensive and stressful. We’ll outline three approaches for you to consider.
When it comes to LTC, there is no one-size-fits-all solution. With a dizzying array of medical, genetic, financial, geographic, and emotional factors to consider, this is not an area of life where you and your family want to be “do-it-yourselfers.”
The theory behind LTC planning is simple—you want to maintain your independent lifestyle as you age. At the same time, you may want or need assistance with certain daily activities you find difficult to do on your own. Those activities, commonly known as the “Six Activities of Daily Living” include eating, dressing, maintaining continence, bathing, transferring, and using the bathroom on your own.
Since Medicare and Medicaid do not cover the cost of getting non-skilled assistance with your activities of daily living, this type of aid can absorb most of your healthcare costs if you’re still living independently.
The Department of Health and Human Services (HHS) estimates that seven out of ten people, regardless of age, will need LTC at some point in their lives and that care will last for three years on average. HHS also estimates that one in five of today’s 65-year-olds will need LTC lasting five years or more. When LTC expenses last for multiple years, your retirement plans and assets can be strained, if not completely derailed.
Here in Washington state, nursing home care (with a private room) costs about $10,000 per month, according to Genworth’s latest Cost of Care Survey. Even if you need a lower level of care and remain in your home, you can still expect to pay over $10,000 per month to have a professional aide take care of you for 12 hours a day, seven days per week.
Fortunately, most of us don’t progress from a healthy, independent state to being entirely dependent on round-the-clock care in one fell swoop. It’s more of a gradual process as we age. The key is to be honest about your health and assessing your needs.
LTC Financing Options
The cost of LTC is significant regardless of current or projected requirements. We have found three effective ways to pay for the costs.
- Self-insuring is the simplest way. By self-insuring, you don’t need to purchase any insurance products or sign any contracts. You pay for most of your care out of pocket. If you have significant (liquid) assets, self-insuring may be an appropriate solution. If you do not have significant assets, or if you want to maximize the assets you transfer to your survivors, then self-insuring may not be your best choice.
- Long Term Care Insurance. With insurance, you pay an ongoing premium. Once you qualify for LTC – defined as needing assistance with at least two of the six “Activities of Daily Living,” a portion of your LTC expenses can be reimbursed up to a stated limit (i.e. – $200 per day). These policies often have a benefit lasting three or five years. In most cases, once you pass away, there is no refund for your unused benefit and no additional benefit is provided. Remember, many LTC policies do not have guaranteed premiums. We have seen several cases in which an individual’s LTC costs have doubled or tripled from the time they first purchased the policy.
- Life insurance with either a stated LTC rider or a similar “Living Benefits” rider. These policies provide a death benefit that can also be used for qualified LTC expenses. In most cases, any unused death benefit is paid out to the beneficiaries. Most often these policies are Whole Life or Universal Life and are designed to last until the policy holder reaches age 100 or longer. These policies can also include unlimited, lifetime guaranteed benefits for qualified LTC expenses. This can mean significant benefits if you end up needing LTC for more than five years.
We Can Help
When it comes to LTC, there is not a clear one-size-fits-all solution to address every situation. Emotions and family dynamics are just as important to consider as bottom line economics. Again, you don’t want to be a “do-it-yourselfer” when it comes to LTC and we’re happy to help you every step of the way. In Part 2 of this blog, we’ll discuss the importance of your insurer’s financial stability and new LTC rules specifically for Washington state residents.
Contact me if you or someone close to you would like to discuss LTC options in more detail. Your life awaits, plan with confidence.
James Nevers,CFP® is a Senior Advisor at Soundmark Wealth Management, LLC. James works closely with physicians, business owners, directors and executives at Amazon, Microsoft, and Boeing, and other successful individuals to help them define their financial goals and implement an ongoing financial planning process.