Long Term Care Considerations – Part 1

Key Takeaways

  • 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.

  1. 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.
  2. 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.
  3. 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.

 

 

This report is intended to be used for educational purposes only and does not constitute a solicitation to purchase any security or advisory services. Past performance is no guarantee of future results. An investment in any security involves significant risks and any investment may lose value. Refer to all risk disclosures related to each security product carefully before investing. Soundmark Wealth Management, LLC, its advisors and its affiliates do not provide tax or accounting services. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax or accounting advice. Please consult with your tax advisor prior to engaging in any transaction.

Reminder to Update Your 2020 Retirement Plan Limits

As financial advisors, we often see missed opportunities for tax-deferred savings. If you are currently contributing to a retirement plan or will be eligible to do so sometime in 2020, you’ll want to be sure to update your deferral amounts to the maximum amount allowed (see table below). If you are unable to max your … Continued

Year-End Tax Strategies You Should Consider

With the year-end approaching, it’s always smart to consider tax planning opportunities. You may be surprised to learn there are more ways to save than you think. No matter which tax bracket you fall in, you generally want to reduce your income or defer it to another year. We’ve outlined a few strategies for you … Continued

Do You Suffer from the FAANG Mentality?

  “Investors with concentrated portfolios may actually miss out on the very stocks that deliver the best of what the market has to offer.” How much influence does the top 10% of performing stocks have in the market? Dimensional Fund Advisors reviews the impact with the FAANG (Facebook, Amazon, Apple, Netflix, Google) mentality. If you … Continued

Soundmark Gives Back

During the month of October, our firm focused our philanthropic efforts on helping the Lake Washington Schools Pantry Pack Program. This local organization distributes over 800 pantry packs weekly to more than 45 participating schools, ensuring food insecure students don’t go hungry over the weekend.                 We collected … Continued

Fall Planning Done Right

It’s the time of year when the weather turns colder, football season is in full swing, and the kids are busy with school. After a hectic summer, you finally have time to slow down and focus on the big picture. Now is a great time of year to review your financial and life planning goals. … Continued

Lessons from Market Timing

  “Timing markets is the dream of everybody. Suppose I could verify that I’m a .700 hitter in calling market turns. That’s pretty good; you’d hire me right away. But to be a good market timer, you’ve got to do it twice. What if the chances of me getting it right were independent each time? … Continued

Preparing Your Business (and Yourself) for a Smooth Exit – Part 2

  Key Takeaways Never assume the value of your business will provide enough for all your retirement goals. “Lifestyle creep” can eat up your discretionary income and derail your long-term financial and retirement goals. Ongoing planning, realistic budgeting, and sensible savings will allow you to live a comfortable lifestyle while you’re saving for retirement.   … Continued

Target Date Funds: Good for Employees, Not so Great for Business Owners

Key Takeaways Target Date Funds (TDFs) are designed to adjust your risk exposure automatically as you get closer to retirement age. TDFs are not entirely “set it and forget it.” You still need to periodically check your accounts. One key drawback for business owners: TDFs do not track the multiple assets you may have outside … Continued

Preparing for Football Season and Your Finances

Football season is back! Whether you are a Husky or a Cougar, a Seahawk or a 49er, your team and its fan base are brimming with optimism this season. What you may not realize is that the outcome of this season is a result of the decisions and actions from weeks, months, and years past. … Continued