Planning for Long Term Care
November 13, 2020
Many people are concerned about health care costs in retirement but planning for long term care is often overlooked. While this issue is not fun to think about, it is important to include long term care as part of your retirement plan. A prolonged illness or extended stay in a nursing home can cost hundreds of thousands of dollars and leave a healthy spouse destitute. Statistically, about half of us will need this type of care at some point in our lifetime and once you reach retirement age the number jumps to 70%! Women are at greater risk than men because of their longer life expectancies.
What is Long Term Care?
Long term care is personal or custodial care provided to individuals who require assistance performing activities of daily living or who have severe cognitive impairment. Activities of daily living include bathing, dressing, eating, using the restroom, and generally moving around. Severe cognitive impairment includes Alzheimer’s, dementia, and other brain disorders. This care can be provided by a family member or a licensed professional. Depending on the type of care needed, it can take place at home, in the community, in an assisted living facility, or in a nursing home.
Types of Long Term Care
In-home care allows a person to comfortably remain in their home while receiving personal care and support services. A caretaker comes to your residence to provide help with activities of daily living as well as nursing, therapy, and homemaker services. The vast majority of long term care begins with in-home care.
Community care offers part-time care in a group setting. It is sometimes referred to as adult daycare because it functions much like daycare for children. Community care centers are usually non-residential facilities that support the daily health, nutritional, and social needs of adults. This type of service is often used so family member caregivers can go to work or have a break from their caregiving duties.
Assisted living care combines housing, personal care, and health care in an apartment-like setting for adults who either cannot or choose not to live independently. These facilities can offer a variety of personal care and support services based on the needs of each resident. This is the ideal option for someone who doesn’t want to live independently in case of a medical emergency.
Nursing home care takes place in skilled nursing facilities that are more focused on medical care than most assisted living facilities. Services include nursing care, 24-hour supervision, nutritional care, and assistance with activities of daily living. Nursing home stays can be for a short time after an illness, or permanent due to ongoing physical or cognitive conditions that require round the clock care and supervision.
How Much Does It Cost?
The cost of long term care depends on several factors including where you live and what kind of care you receive. These costs have been rising much faster than inflation. Below are the national median costs according to the Genworth 2019 Cost of Care Survey.
|Type of Care||Cost|
|Nursing Home||$7,513/month Semi-private room
$8,517/month Private room
|Assisted Living Facility1||$4,051/month|
How will you pay for these costs? While Medicare provides health insurance for people age 65 and older, it does not pay for long term care expenses. Medicaid does pay for long term care, but only after spending down assets to a very low level. Eligibility for Medicaid varies from state to state.
Personal income and assets can be used to pay for long term care. You can plan to pay these costs yourself by saving or earmarking certain assets. Long term care insurance can also be used for these expenses. There are three main types of long term care insurance that cover this risk, traditional, hybrid, and life insurance with a long term care rider.
Managing Long Term Care Risk
Purchasing insurance can be a great way to manage the risk of paying for long term care costs. This can help provide peace of mind for you and your family while protecting assets and preserving your financial legacy. Premiums for long term care insurance are potentially tax-deductible and can be paid from your Health Savings Account. Inflation protection and other riders can be added to these policies at an additional cost.
Traditional long term care insurance offers the lowest premiums compared to the coverage it provides. The drawback to this insurance is premiums are paid for your lifetime, they can go up as you get older, and they are not refunded if you don’t use the insurance.
Hybrid long term care insurance combines both long term care and life insurance. Premium payments are fixed and can be paid in a lump sum or over a period of years. If funds are not used for long term care, you can receive money back or have funds paid to your heirs in the form of a death benefit. The benefits of this type of policy are fixed premiums and the return of unused premiums.
Life insurance with a long term care rider is an option for those who need permanent life insurance and want to add long term care coverage to the policy. Premiums are paid for your lifetime and the policy can accumulate cash value. If the long term care insurance is not used, this type of policy has a larger death benefit for heirs than a hybrid policy. The drawback here is the lifetime payment of premiums.
Things to Consider
When planning for long term care, there are a few considerations you should make. First, what is your current health and your family history? Does your family have a history of debilitating health conditions? If so, you may be more likely to need long term care in the future. You should also consider your financial situation. Would you be able to cover the costs of long term care? How would these costs affect retirement for you and your spouse? Would it reduce assets you plan to leave to your heirs? If so, you may want to consider long term care insurance.
Trinity Wealth Management
At Trinity Wealth Management, our fiduciary advisors will help you plan for long term care and determine if insurance is the best option for your needs. Contact us today for more information on planning for and managing this risk. We look forward to hearing from you soon!
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