What Is Your Long-Term Care Plan?
If someone told you that you had a glaring gap in your retirement planning, would you make an effort to remedy the problem as soon as possible? Unfortunately, many Americans have this glaring blind spot in the form of long-term care, with only 1 in 5 adults taking any action toward financing their future long-term care expenses. (1) Because an average 70% of today’s 65-year-olds will require some form of long-term care during their lifetimes, it’s critical to have a plan to pay for these costs. (2)
When you are healthy and thriving, it’s easy to focus solely on building your savings to provide for your basic retirement expenses and forget about the potential need for long-term care as you age. But no matter what your health looks like today, creating a long-term care plan now will empower you to research your options and choose strategies that are the best fit for you.
How Much Will Long-Term Care Cost?
Long-term care costs are so high that they could potentially wipe out a bulk of your retirement funds. On average nationally, it costs $267 per day or $8,010 per month for a private room in a nursing home. (3) Furthermore, because of their longer life expectancy, women pay significantly more for long-term care. The average amount of time women require long-term care for is 3.7 years (or around 44 months), adding up to $352,440 in expenses. (4) For men, who on average need long-term care for 2.2 years (or around 26 months), that equals $208,260.
And costs are only projected to increase. In the past five years, long-term care expenses have risen about 3%, with a big jump in prices from 2016-2017. (5) By 2026, the average cost is expected to increase to $4,876 per month for assisted living, (6) compared to $4,000 today. (7) These costs can vary based on the level of care and amenities needed, as well as the size of the room and the location, so your first step in making your own long-term care plan is to decide what type of care you prefer.
What Type Of Care Would You Like?
If you have a family history or early signs of Alzheimer's or dementia or if you suffer from a chronic disease that will require ongoing care or daily assistance, you may want to look into facilities that offer the specific care you’ll need. Be sure to share your preferences with your family. Would you like to live in a nursing home or would you prefer nurses and assistants come to your residence? Do you want a religious community of care? There are several options to take into consideration when creating your long-term care plan.
Many people grieve the loss of independence and autonomy when their health suffers in the latter years of their life. Drafting up a long-term care plan now will give you some much-needed control over how you spend the rest of your life. If you wait until you need long-term care, you may not be in good enough health to make the decision, or the size of your savings might determine the care you receive. Whether you’re worried about potential health concerns or want to protect your hard-earned wealth, it’s important to understand the long-term care insurance options available to you and whether or not a policy makes sense for your lifestyle and needs.
Your Long-Term Care Plan
Once you have an idea of what you want your long-term care to look like, it’s time to research ways to pay for it. Long-term care coverage isn’t cheap, but it pales in comparison to long-term care costs. Here are some options to consider when creating your long-term care strategy.
1. Traditional Long-Term Care Insurance
With traditional long-term care insurance, you pay a premium in exchange for the ability to receive benefits if they are needed. If you need long-term care at some point, the policy provides you with money to pay for it. If you never need long-term care, then you receive no benefits. It’s a “use it or lose it” policy.
Just like any insurance policy, you will have some coverage choices to make.
You can choose the level of insurance you want and select the daily benefit amount for care in a nursing home. You can also add home-care coverage if that is a priority for you. In order to choose the right coverage amounts, you need to know what the cost of long-term care looks like in your state. For example, a private room at a nursing home in California will cost an average of $8,365 a month, and hiring a home health aide could set you back over $50,000 for the year.
Length Of Coverage
You must also decide on the length of time you want the benefits to be paid. Common options are one, two, three, or five years, or for your lifetime. Logically, the longer the benefit period, the higher the premiums you will need to pay.
Your policy will also indicate “benefit triggers,” or conditions which must exist in order to receive benefits from the insurance company. A tax-qualified plan only pays benefits once you are unable to perform two of six activities of daily living without substantial assistance for at least 90 days, or have a cognitive impairment like Alzheimer’s. Non-tax-qualified plans may have less restrictive benefit triggers.
Inflation And Premiums
If you want, you can have your benefits increase with inflation to match future care costs. It is also important to note that premiums can increase as they are not usually set in stone.
2. Life Insurance With A Long-Term Care Rider
With a traditional long-term care policy, people sometimes feel that if they buy it and don’t use it, they have wasted their money. Because of this, several hybrid products have emerged. One very popular solution is a life insurance policy with a long-term care rider. This strategy is enticing because if long-term care is needed, the funds are available through your policy’s death benefit. If you don’t spend the total benefit available, your beneficiaries will receive the balance upon your death, thus no wasted money.
If you need life insurance, getting your long-term care coverage as a rider may be a good option. This way, someone will be benefiting from the premiums you are paying, whether it is you or your heirs.
3. Annuity With A Long-Term Care Rider
If you don’t need life insurance, another combination product may be better suited to your situation. If you purchase an annuity, you may have the alternative of adding a long-term care rider onto the contract. Since 2010, the IRS allows for the long-term care portion to be used tax-free.
After purchasing the annuity, you would select the amount of long-term care coverage you want, often two to three times the face value of the annuity, as well as the length of time you want coverage. Finally, you have to decide if you want inflation protection.
This option makes money available to you if you need long-term care. Otherwise, you can cash out the annuity when it matures (in which case you would lose your long-term care coverage) or let it accumulate and ultimately pass on the assets to your heirs.
Obtaining long-term care coverage through an annuity can be appealing because it is generally less expensive than stand-alone insurance and you can receive coverage without medical underwriting. Annuities tend to be less common than the other choices, though, because of the current low-interest rates and the large up-front investment.
4. Save On Your Own
Consider starting a savings plan specifically for future healthcare needs. One option is to create a separate, high-yield savings account and contribute a specific amount every month, building a contingency fund for whatever healthcare expenses come your way. If you end up not needing long-term care, the money is still yours and can be used for your living costs, unexpected expenses, or an inheritance for your heirs.
Regardless of where you are in life and the financial obstacles you face, the important thing is that you start planning for this aspect of retirement. Thinking about the need for long-term care can be deeply unsettling and confusing. That’s why our team at Comprehensive Advisor is here to help with our comprehensive financial planning services. If you have questions about your long-term care options and want to make sure you have the coverage you need, email us at info@ComprehensiveAdvisor.com or call (760) 813-2125 for a no-obligation conversation.
About Brett and John
Brett Gottlieb is the founder of Comprehensive Advisor and a financial advisor with nearly two decades of industry experience. He graduated from California State University-Chico with two bachelor’s degrees in Business Administration and Economics. Brett is Life Insurance licensed in several states.
John Mc Kean, financial advisor, joined Comprehensive Advisor in 2016. He has been in the financial services and retirement planning industry for over six years. John is Life Insurance licensed in California.
Brett and John previously worked as a Registered Representatives with Securities America, one of the largest independent broker/dealers in the country, and currently offer advisory services through Legacy Road, LLC, a Registered Investment Advisor. Both are passionate about educating clients on retirement planning. They take a common-sense approach to the planning process and work with clients to create a retirement road map to help ensure their assets are protected and they receive the income needed to enjoy their future. Based in Carlsbad, California, they work with clients throughout San Diego County. Learn more by connecting with Brett on LinkedIn or email us at info@ComprehensiveAdvisor.com.
Advisory services offered through Legacy Road, LLC, a Registered Investment Advisor.
Brett Gottlieb, Investment Advisor Representative. California Insurance License #0C68886. John Mc Kean, Investment Advisor Representative. California Insurance License #0K37445. Comprehensive Advisor and Legacy Road, LLC are not affiliated.