The
Herald Business Journal (Everett, WA) June 11, 2019
Many people are
frightened of long-term care costs - for good reason.
Most people older
than 65 eventually will need help with daily living tasks, such as bathing,
eating or dressing. Men will need assistance for an average of 2.2 years, while
women will need it for 3.7 years, according to the U.S. Department of Health
and Human Services' Administration on Aging.
Many will rely on
unpaid care from spouses or children. However:
More than one-third
will spend time in a nursing home, where the median annual cost of a private
room is now more than $100,000, according to insurer Genworth's 2018 Cost of
Care Survey.
Four out of 10 will
opt for paid care at home, and the median annual cost of a home health aide is
more than $50,000.
Overall, half of
people older than 65 will incur long-term care costs, and 15% will incur more
than $250,000 in costs, according to a study by Vanguard Research and Mercer
Health and Benefits.
Medicare
won't help
Medicare and
private health insurance typically don't cover these "custodial"
expenses, which can quickly wipe out the $126,000 median retirement savings for
people age 65 to 74. People who exhaust their savings could wind up on
Medicaid, the government health program for the indigent that pays for about
half of all nursing home and custodial care.
People who live
alone, are in poor health or who have a family history of chronic conditions
have a greater-than-average likelihood of needing long-term care. Women face
special risks, since we tend to outlive our husbands and thus might not have
anyone to provide unpaid care. If our husbands need paid care that wipes out
our savings, we could face years or even decades living on nothing but Social
Security.
Certified financial
planner Margarita Cheng persuaded her parents to buy long-term care insurance
when her dad was 68 and her mom was 54. Five years later, he was diagnosed with
Parkinson's disease. The policy paid for $225 of the $260 daily cost of his 24-hour
care in the final months of his life, she said.
"My dad's
disease could have been devastating financially for my mom," Cheng says.
"Her mom lived to be 94, so my mom could easily have 30 more years in
retirement."
Everyone
needs a plan
Everyone approaching
retirement age should consider their potential risks and have a plan to deal
with long-term care expenses, financial planners say.
"The earlier
they start planning, the more choice and control they have," Cheng says.
The options
include:
Long-term care
insurance. The average annual premium for a 55-year-old couple was $3,050 in
2019, according to the American Association for Long-Term Care Insurance.
Premiums are higher for older people, and those with chronic conditions might
not qualify.
Policies typically
cover a portion of long-term care costs for a defined period such as three
years. In the past, big premium hikes forced many people to drop their policies
after they became unaffordable. Financial advisers say the insurance is now
more accurately priced, although people should still plan on premiums that
could rise 50% to 100%.
Hybrid long-term
care insurance. Life insurance or annuities with long-term care benefits now
outsell traditional long-term care insurance by a rate of about 4-to-1. With these
products, money that isn't used for long-term care can be left to heirs.
These products
typically require you to commit large sums: $100,000 upfront, for example, or
paid in installments over 5 to 10 years, although some now have "lifetime
pay" options that average about $7,000 a year.
Home equity. People
who move permanently into a nursing home might be able to sell their houses to
help fund the care. Reverse mortgages might be an option if one member of a
couple remains in the home. These loans allow people to tap home equity but
must be repaid if the owners die, sell or move out.
Contingency
reserve. People with substantial investments could earmark some of those assets
for long-term care. The investments can produce income until there's a need for
long-term care, and then be sold to pay for a nursing home or home health aide.
Spending down to
Medicaid. People who don't have much saved, or who face a catastrophic
long-term care cost that wipes out their savings, could end up depending on
Medicaid. There are ways to protect at least some assets for spouses, but those
typically require planning with an elder law attorney's help. You can get a
referral from the National Academy of Elder Law Attorneys.
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