Long-term care costs are surging again, and the most expensive option – a private room in a nursing home – may soon top $100,000 per year. Growing labor expenses and sicker patients helped push up the median cost of care (including adult day care and assisted living communities) an average of 4.5% from 2016 to 2017, according to a survey by Genworth Financial.   Please review the 2018 Cost OF Care Survey

A national statistic says that 70% of people age 65 or older will need long-term care assistance as they age.
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Most people do not think they will ever need long-term care. They may claim, “That would never happen to me.” However, a national statistic says that 70% of people age 65 or older will need long-term care assistance as they age. When we are thinking of retirement planning, we should always have our financial advisor include this in our plan.

The old way of planning for retirement was to rely on family, self-insure, or buy expensive long-term care insurance. Children may want to help their parents but might be incapable or resentful of assuming those duties. Self-insuring now means you may need at least $400,000 to cover one person’s expenses, which could eat up your retirement nest egg. Finally, long-term care insurance can be very expensive, even if you qualify for it. In most cases, if you do not use long-term care insurance, you will lose all of the premiums you have paid in.

If you have been planning diligently for retirement but have not made the proper plans for long-term care, you could find yourself in a Medicaid spend down. What does this mean? First, let’s define Medicaid. Medicaid is a federal-state matching entitlement program that pays for medical assistance for certain vulnerable and needy individuals and families with low incomes and resources. The Medicaid program is jointly financed by the federal and state governments and administered by the states. If you had to go through the spend down in order to qualify for this assistance, you would find that a nursing home patient is not allowed to have more than $2,000 worth of countable assets. Here is possibly the big one, if you are married: A spouse living at home is allowed to keep a limited amount, which would be $123,600 of liquid assets: one house and one car. Do you see where I am going with this? You have worked your entire life to build this wealth so that you and/or your spouse could enjoy retirement, and then one day, life throws you a curve-ball. You, your spouse, and your children could be affected if you have not made proper plans to prepare for long-term care.

The good news? There are options out there besides long-term care insurance that most people have no idea exist. Your first option may be to purchase a long-term care insurance policy. Every person has to go through underwriting to see if they qualify. The questions primarily put the focus on morbidity (the likelihood you will have a long-term care event). In most cases, it is “use it or lose it” regarding monthly premiums.

An option that many of our clients have used is a life insurance retirement plan (LIRP), which is based on mortality (the likelihood you will die); you buy life insurance and pay a monthly premium. Let’s say you purchase a $500,000 death benefit. We all know that when you die, your beneficiary collects the death benefit, but what if we could use the death benefit as a living benefit? In this example, you could get 2% a month (or 24% a year) of the death benefit, which would be $10,000 per month, to use for long-term care assistance at home, assisted living, or full-blown nursing home care. The money is yours, so it can be used how you see fit. You would be able to use this for four years, or up to 95% of the death benefit. It is a great tool that puts you in control, and if you do not ever need long-term care, then your beneficiary collects the full death benefit when you die. Not every LIRP is created equal, so it is important to seek out a financial professional who can assist you if this is a direction you think you may want to go.

You may ask, “What if I cannot answer the health questions for a long-term care insurance policy or the life questions for the LIRP? Is there any other option?” The answer is YES.  Another option we use is a fixed index annuity (FIA). This tool is an investment vehicle where there are no health questions. Let’s discuss how this works. A person invests $300,000 into an FIA that is linked to an index (i.e., S&P 500). They have no market risk, and if the index performs positively, then they will receive interest credits. If the index performs negatively, their account would not fall due to market risk. You have the opportunity to draw lifetime income from the strategy. So, let’s say you were drawing $2,500 per month, and then, later on, you needed long-term care: The insurance company would double your monthly payout to $5,000 per month for five years. Now, not every insurance company will do this, so it is important to do your research or seek out a financial advisor who can help you. You can read more about this article on the Forbes Website

If all or even part of this is confusing, please contact me from our contact form, email or phone number listed below for a free consultation.

 

I look forward to helping you and any friends or family members that may have additional questions.