November is Long Term Care Awareness Month: Are You Prepared?
If you turn 65 today, you have almost a 70% chance of needing some long-term care services in the future, according to U.S. Department of Health and Human Services estimates. For those needing help, research shows they can expect average out-of-pocket costs in the range of $140,000. If you end up living longer, or for those millions of Americans dealing with debilitating conditions like dementia, these costs can run much, much higher.
Yet despite these intimidating numbers, few people take the time to plan for this possibility. One survey showed that 65% of respondents age 40 or older admitted they had not done any substantial planning for their long-term-care needs.
The Latest Research on Long Term Care
Recent studies show some good news: the situation is not always quite so dire. And there’s a strong indicator of how much assistance a person will need later in life. If you are healthy in your late 60s, according to a study by the Center for Retirement Research at Boston College, you’re much less likely to need care.
Other findings from this research:
About one in five 65-year-olds will die without needing any care at all.
Another one in five will require only minimal care.
One in four will have severe needs that will require high-intensity support for three or more years.
The remainder, about 38%, will fall somewhere in the middle, needing a moderate amount of care for one to three years.
Long Term Care is a Risk You Can Plan For
As more data emerges, it gets easier to quantify and plan for this risk. But bottom line, you’ll have more time to allocate resources to pay for your preferred choices by planning in advance. This is important since there can be a wide range of options, with home care and high-quality facilities costing significantly more. If you don’t plan and end up exhausting your assets, you’ll have to rely on Medicaid, leaving you minimal choice in the type of care you receive. Alternatively, you may end up paying significant amounts out of pocket for the quality of care you prefer.
If you have a spouse or partner, it’s also essential to protect assets for their future. That means making sure funds are available for long-term care services if and when you need them.
Long Term Care Planning Requirements
Typically, we advise clients to plan coverage for the average cost of nursing care for about three years, with some inflation protection included.
Because nursing care is usually the most expensive type of long-term care, this helps you plan for a worst-case scenario for those three years. The care costs vary by state, often quite dramatically. According to Seniorliving.org, a private room in a nursing facility can range from $5,749 in Mississippi to $14,357 per month in Washington, DC.
Here’s an overview of the three most common options we consider for funding a potential long-term care need:
Option 1: Buy traditional long term care insurance
Until recently, many people relied on long-term care insurance as a simple solution. Since then, however, things have changed quite dramatically. Traditional insurers have faced much higher costs than they initially projected and have chosen to pass those on to existing policyholders. As a result, people have seen their long-term care premiums double and even triple before getting a dime of benefits. Consequently, we rarely recommend this option.
Option 2: Buy hybrid long term care insurance
More recently, “hybrid” long-term care insurance has emerged as an alternative. To create a hybrid policy, companies typically combine life insurance with a long-term care rider. One key benefit to these policies is that typically, the premium remains fixed- addressing the main problem with traditional long-term care insurance.
Also, the money doesn’t simply evaporate if you don’t use the benefit. Usually, some portion of your premiums is returned to your heirs as a death benefit if unused.
One potential drawback to hybrid policies is that most policies pay a fixed benefit per month after activation. For example, your policy may pay $5,000 per month. In many cases, your actual cost of care may exceed that, so it should be looked at more like an offset than as full coverage.
If you go with an insurance option, most policies have an “elimination period” before you can start collecting benefits. These can range from 30 to 365 days, and the longer the period, the lower the premium. That’s why it pays to plan in advance.
Insurance companies will also require approval from their medical team for you to qualify for benefits. Some providers make it easier than others; for example, they may base their decision on your doctor’s recommendation.
Option 3: Create a personal long term care savings fund
Insurance is not the only answer. Increasingly, we recommend that self-insuring is ideal if you have the resources or adequate time to prepare. We recommend using a specifically funded investment account earmarked for this purpose. That way, if you end up not needing the money for care, the money is yours to repurpose any way you like.
As long as you are disciplined and fund the account consistently, this can be an ideal option because you retain complete control of how and where to spend the money. You don’t have to worry about the insurance company being the gatekeeper on approved expenses.
The key with this option usually is time. You need to start now, not later, so there’s enough time for the money to grow.
Whatever you do, planning in advance is key. With advanced planning, you gain more certainty about the future as well as significant peace of mind today.
The opinions voiced in this material are for informational purposes only and are not intended to provide specific advice to any individual. Consult your legal, tax, and/or financial advisor to determine what is appropriate for your situation.
Questions and Consultations
If you have questions or if you’d like to schedule an appointment to discuss your finances, contact us today.
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Partnership Wealth Management is a comprehensive financial services company. We are committed to providing our clients with financial planning and wealth management services to help them make the most of their investments. At Partnership Wealth Management we have a long history of working with the LGBT community. Among our many services, we offer financial planning for gay couples and lesbian couples as well as estate planning for gay couples and lesbian couples. Financial planning is an important part of preparing for the future, contact us today to get started: www.partnershipwm.com. We always try and provide the best information – We are not responsible for information on third-party sites. Thanks for reading!