Long-Term Care and Your Financial Plan
Health care was on the minds of many voters during the mid-term elections, and I suspect this will continue to be a hot-button issue. Thanks to advances in medicine, technology, and standards of living, people are living longer and more active lives. However, with increased life expectancy comes higher health care costs and higher insurance premiums that you’ll have to account for longer into your retirement – especially if you’re a woman. Nevertheless, most of us are going to reach a point where we just cannot take care of our basic needs without a little additional help.
On today’s show, we’re giving our listeners an important overview of long-term care: who needs it, for how long, what Medicare does and doesn’t cover, and how to make sure your financial plan keeps you safe and comfortable throughout the later stages of your retirement.
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1. What is long-term care?
Long-term care is a range of services you may need to meet your personal care needs. Most long-term care is not medical care, but rather assistance with the basic activities of daily living, or ADLs. The most common ADLs are walking, bathing, dressing, using the bathroom, transferring from one chair or bed to another, and eating.
2. Who will need long-term care?
At some point in our lives, most of us do, whether because of illness, injury, or old age. Some folks are able to rely on help from friends and family, at least for a time. But if taking care of those ADLs becomes too difficult, or if a person’s basic level of health deteriorates, then folks need to start investigating assisted living or in-home nursing options.
3. How long is long-term care?
According to the U.S. Department of Health and Human Services, 48% of people 65 and older will need some form of long-term care for a year or less. While 19% of folks will need long-term care for one to two years, and 21% will need it for between two and five years.
4. Do Medicare and Medicaid cover long-term care?
Unfortunately, Medicare will only cover long-term care costs for a lifetime total of 100 days.
Most people in the US who are in long-term care for an extended period of time are on Medicaid. However, Medicaid eligibility only kicks in after you have seriously depleted all of your assets. From my own experience of helping my great Aunt Nina find long-term care around age 99, I can tell you that Medicaid facilities often struggle to provide the dignity and quality of life you want for your loved ones.
5. What can long-term care cost?
Even folks who only need long-term care for a year or two need to prepare themselves for some significant expenses.
On average nation-wide, home health care costs around $4,000 per month. Adult day healthcare is a less-expensive option, at around $1,500 per month. Assisted living facilities, which typically help folks transition into more extensive care when needed, cost on average $3,700 per month. While nursing home care in a private room can cost up to $8,000 per month.
6. What are my long-term care insurance options?
On average, you can expect to pay around $6,500 per year for long-term care insurance, but like any other insurance plan there could be additional out-of-pocket costs. Even more problematic is that many of these plans do not feature true fixed premiums. In some states, insurers can argue that they’ve under-insured customer risk, and as a result, are granted permission to raise rates from an Insurance Commissioner. Unfortunately, we’ve had quite a few folks walk into the firm looking for help with older long-term care policies whose rates have gone up dramatically since they purchased them.
We’re also keeping a close eye on new hybrid insurance products to consider, which combine life insurance with annuities that keep their rates fixed. These products may also offer benefits to your heirs, but they’re typically much more expensive than a traditional long-term care policy. Some states are also funding partnership Medicaid plans that incentivize seniors to purchase long-term care plans.
Finally, some folks choose to trigger Medicaid eligibility by transferring their assets to heirs. Anyone considering this approach should consult an elder law attorney, as the government will perform a five-year lookback on transferred assets.
7. Should I buy long-term care insurance?
No one wants to rack up astronomical health care costs that could jeopardize their nest eggs. If you or your spouse has a family history of Alzheimer’s or dementia, you might want to explore long-term care insurance early in your retirement. Let’s go back to the government numbers that show only about one-third of the population will need long-term care for more than two years. While most long-term care policies will offer coverage between $300,000 and $500,000, estimates show that less than 15% of the population will actually use that much insurance. In fact, the government estimates that out-of-pocket long-term care costs for 63% of folks over age 65 will be zero dollars.
One alternative to buying more insurance: plan ahead with a pro. We’ve worked with many of our clients to set aside funds for long-term care rather than paying for elective insurance they might never use. That way the money is there if you need it, and available for other uses if you don’t.
If you or your spouse has experienced any wellness changes in the past year, please make an appointment to come in and discuss the situation with us. We can help you anticipate costs and adjust your retirement plan as needed so that you both get the care you need.
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Got a question or comment? Email it to me and we'll get back to you or call our office at (913) 624-1841.
Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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