The Long Game

Ok, so you are prosperous, and life has treated you well. You have worked, had a wonderful career, and are almost ready to retire. According to the plan as coordinated by you and your financial person, you are on course for your wonderful twilight years…fully ready to live “happily ever after.” But wait…we all know that life can throw the unexpected at us…just look at the past few years for example…who could have predicted? You’ve reviewed your plan dozens of times and see nothing wrong. Then you read an article which stokes your concerns…one that states that 70% of people over age 65 will have some sort of disabling event that will require assistance of 2 months or longer. You suddenly realize that if you or your spouse became incapacitated, your future savings might be in jeopardy. If an event happened after you retired, would your resources last? 

And what types of disabling events are we talking about? Those which impair you to the point where you are unable to perform 2 of the 6 Activities of Daily Living (ADLs). The ADLs are Bathing, Dressing, Eating, Transferring, Toileting, and Continence. During these COVID times, disability may be more on everyone’s mind in some form, but the data shows that not much preemptive action is being taken. Many still think that Medicare of Medicaid will cover their needs should they need long-term institutional care or at-home assistance. A look at the chart below shows where the money is coming from and who is paying for long-term care in this country:

That’s right! 52% of all long-term care costs are paid “out-of-pocket,” putting a potential strain on individuals and families. Remember, Medicare can and will pay for institutional care, but it will only pay expenses for up to 100 days. If more time is needed for recovery, or if debilitation is permanent, Medicare is not a viable solution.  According to data from the Department of Health & Human Resources, roughly 48% of people aged 65 and over will either have a short-term disability event of less than 1 year, (meaning Medicare could handle much if not all of it) or will not have a debilitating incident at all. The other half will need some type of long-term care, with 15% paying well over $250,000 to have their needs met. Most will pay for it themselves. You might ask, “How expensive can things get?” Below is a chart listing the national average cost for the various types of assistance that are usually needed:

long-term care

Again, this data was as of 2020, so costs have gone up another 2% or more, depending on where you live. Other than paying for the expenses directly out of the family savings, how can you pay for what might be a very expensive eventuality? Let’s refer back to the pie chart for an answer. As we mentioned, Medicare is a limited option as it only pays for 100 days. Medicaid may pay for long term care. However, in addition to needing the assistance of your physician, you must meet the qualifying requirements of your community, (usually assets of less than $2,000 as an individual and $3,000 per couple). Again, it varies by state, but it is primarily only an option when you have little income and your assets (excluding your home) have been depleted. If you have resources, states expect you to pay for your own care. “Other Public” is also not an option for most, (if you don’t know what this is, it likely does not pertain to you). So, who wants to pay over $55k plus each year for home health care…anyone? 

If you and your family want to keep your banking, retirement, and investment accounts or pass them on to heirs, without the risk of depletion, what can be done? The only other option is through private insurance plans. Long-Term Care Insurance policies were created for this event but recently they have been a bit questionable. Within the last 10 years, LTC providers have dramatically increased their premiums because they grossly miscalculated both the costs needed to provide service as well as the number of people who would need it. Although premiums can be pricey, it is still an option worth exploring. After all, $3,000 or $4,000 per year when you don’t need it is usually cheaper than $55,000 per year when you do.

Aside from LTC insurance, another alternative is to partially, or fully, fund the cost through a hybrid insurance product. One such product is a Whole Life insurance policy with an LTC rider (feature). Basically, this product will pay a face amount in the form of a lump sum or an income stream to address care expenses. If the policy holder dies before needing care, the beneficiaries will get a death amount (face value), as is usual for life insurance policies. Another hybrid product is a Long-Term Care Annuity, a single premium annuity with a long-term care feature. It functions like a regular annuity but if care is needed, the product offers special provisions to help pay for much of the expenses. There may be a few other options as well, but ultimately, whether you buy LTC, or use a Whole Life strategy, etc., depends entirely on your individual situation. The current data show that most people do not have a strategy until it’s too late. That said, the main idea is to consider the possibilities and at least have a contingency plan in place if necessary. The last thing you want is for your current retirement plans to become sidelined due to a glaring oversight. 

If you still have questions on how you should pursue this path, we can help! We can guide you through the maze of information, clarify the intricacies of the long-term care options, and assist with the choices. Contact me on our website or call us at 1-800-310-2828. Together, we can find the right solution for you!