It's not fun to think
about, but if you boil down your choices a bit, making a plan for what could
easily cost several thousand per month becomes less daunting.
By Carlos Dias
Jr., Wealth Adviser, Founder and President | Dias Wealth LLC February
28, 2018
For many retirees, the
term "long-term care" is typically associated with a nursing home. As
we age, there is a greater chance we will need some sort of long-term care in
the future. According to the U.S. Department of Health and
Human Services, 70% of people over 65 will need long-term care
at some point in their lives.
The worst part is that
many will not (or do not want) to discuss the need to plan until it is possibly
too late. The good news is that you have many options, but you might need to
get a little creative. Take one of my clients, as an example. Fifteen years
ago, at age 60, she had purchased long-term care insurance policy, and over the
years had paid about $45,000 in premiums for a $7,600-a-month long-term care
benefit with a 90-day deductible (known as an "elimination period").
The policy had a five-year limit, for a total payout possibility of $456,000.
Now, at age 75, she was
worried about the rising cost of her insurance coverage as well the possibility
that she would never use the policy, getting nothing for all the money she paid
on premiums. She had $200,000 in a bank CD that she didn't need for her living
expenses, so we came up with an alternative plan. She ditched her old long-term
care plan and used the $200,000 to replace it with an $8,800 monthly long-term
care benefit with a 0-day elimination period for four years (a $422,000 total
payout). On top of that, if she never uses the benefit, her kids would receive
a $211,000 death benefit (a return of her deposit and minimal interest).
So, how can you prepare
for long-term care costs? Here are six options:
1.
Self-pay
The most obvious choice,
but it comes with a hefty price tag. A Genworth Cost of Care Survey
conducted in June 2017 revealed the national median for the following services:
·
Home health aide services: up 6.17% to $21.50/hour
·
Homemaker services: up 4.75% to $21/hour
·
Adult day health care services: up 2.94% to $70/day
·
Assisted living facilities: up 3.36% to $123/day or $3,750/month
·
Semi-private room nursing home care: up 4.44% to $235/day or
$7,148/month
·
Private room nursing home care: up 5.50% to $267/day or $8,121/month.
Due to higher labor costs
and stricter laws, expenses have and will continue to increase. Even though
care received at home is more affordable than in a nursing home, you can never
anticipate future needs.
2.
Government benefits
Many retirees think that
Medicare will pay for their long-term care. Unfortunately, this is not true and
often one of the biggest misconceptions. Although Medicare covers some home and
nursing home care, it is only for rehabilitation purposes and not categorized
as long-term.
If you're a veteran, there
is a pension with aid and attendance available. The amounts are contingent on
if you're: single (up to $1,830 per month); married (up to $2,170 per month);
or a surviving spouse of a veteran (up to $1,176 per month). There are certain
conditions that need to be met, such as proof of service and a doctor's
evaluation, in order to receive the benefit.
Retirees can also pursue
their state-run Medicaid program to cover long-term care expenses. But qualifying for Medicaid is not easy since
it is based on federal poverty guidelines. If you're single, depending on the
state in which you live, the income limit is around $2,000 per month, and your
assets (excluding the value of your home and vehicle) can't exceed around
$2,000. Married couples can have assets as high as $120,900. Make sure to use
an elder law attorney with experience if you decide to pursue this route.
Planning for long-term
care through government benefits can be a challenging task, especially for
couples.
3.
Traditional long-term care insurance
This choice has been
around for decades but is no longer as cost-effective as it once was. For a retiree
choosing to purchase traditional long-term care insurance today, it may lead to
regret in the future. Why? With rising policy premiums and stricter state
reserve requirements, there aren't a plethora of insurance companies to choose
from anymore.
In addition, unless a
return-of-premium rider was purchased in the past—a feature not offered on
newer policies—your traditional long-term care insurance policy would have no
value today if it lapses or you pass away.
4.
Combined life insurance with long-term care benefits
One option retirees are
using is a combined life insurance policy with long-term care benefits (also
known as a "rider"). Not only are there similar features available
(e.g., inflation protection and different elimination periods to choose from),
but if you pass away prematurely, your beneficiaries receive a tax-free death
benefit.
The biggest difference you
should be aware of is whether the policy has either a chronic illness or
long-term care rider. A competent financial adviser well-versed in long-term
care will know the difference between both.
5.
Combined annuity with long-term care benefits
Similar to aforementioned,
a combined annuity with long-term care benefits might offer a higher dollar
amount or more lenient underwriting in lieu of a tax-free death benefit.
Currently offered by a
select few insurance companies, the key is to make sure it is classified as
long-term care. Some financial advisers are selling annuity policies with a
double benefit (also known as a "home health care doubler") that pay
at the most a maximum of five years and are not deemed long-term care.
6.
Life settlement
If you have an existing
life insurance policy—whether term or permanent—legally it is an asset with
ownership rights. Life insurance policies contain some sort of value that often
goes unrecognized. In fact, you might allow your life insurance to lapse because
it's no longer needed, but could've converted it into a long-term care benefit.
Many retirees, including one of my own clients, are using their existing life
insurance policies as collateral to fund their future long-term care needs.
My 76-year-old client had
a life insurance policy with a $1.2 million death benefit on which he was
paying $35,000 in annual premiums. The policy had very minimal cash value, and
he was contemplating letting it lapse. By using a Medicaid life settlement, he
was able to exchange his life insurance policy for about $350,000 worth of
long-term care to pay for home health, assisted living or nursing home expenses
in the future.
It's never too early to
plan for long-term care, so make sure to include it as part of your financial
plan in retirement.
Carlos Dias Jr. is a
financial adviser, public speaker and president of Dias
Wealth LLC, in the Orlando, Florida, area, offering strategic
financial planning services to business owners, executives, retirees and
professional athletes. Carlos is a nationally syndicated columnist for
Kiplinger and has contributed, been featured or quoted in over 100
publications, including Forbes, MarketWatch, Bloomberg, CNBC, The Wall Street
Journal, U.S. News & World Report, USA Today and several others. He's also
been interviewed on various radio and television stations. Carlos is
trilingual, fluent in both Portuguese and Spanish.
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