Can you afford $8,000
per month for care? Chances are, you'll need it at some point. Some solutions
to that pricey problem include long-term care insurance, "living
benefits" and annuities.
by: Jared M. Elson, Investment Adviser May 8, 2017
Thanks
to advancements in medical technology, Baby Boomers now entering retirement can
expect to live another 20 or 30 years. Maybe longer.
Which
is great. But it also requires much more planning for future financial and
physical needs than most Americans are willing to do.
We
all like to think we’ll have the same abilities and independence at 85 that we
had at 65, but that’s just not reality. If you’re 65 today in the United States,
there’s a 70% chance you’re going to need some kind of long-term care during
your life, according to the U.S. Department of Health and Human Services.
And
that care — whether it’s at your home, an adult day care center, a nursing home
or an assisted-living facility — is expensive. Genworth’s annual Cost of Care
Survey found the national median rate for a private room at a nursing home in
2016 was $7,698 per month. Staying home is cheaper, but not cheap. The survey
found the median rate for an in-home aide was $3,861 per month. And those costs
are increasing.
The problems with Medicare and Medicaid
If
you think Medicare will pick up the tab, think again. It will help pay for a
short stay in a skilled nursing facility, hospice care or home health care
under certain conditions, but that’s it. Beyond that, it’s going to come out of
your pocket. If you can’t afford to pay, another option — one that many
Americans rely on — is to spend all your assets to qualify for Medicaid.
It’s
not a great answer, though. When you’re on Medicaid, you lose a lot of choice
about the type of care you’re going to get. And your medical costs will chase
you. If you have equity in a home, your estate will get those bills after you
die.
Relying
on Medicaid to cover your care will be financially devastating, especially if
you have a surviving spouse, who will be left with greatly depleted resources.
So,
obviously you need a plan — and you need options.
About long-term care insurance
The
traditional way to go is long-term care insurance. Much like term life
insurance, you pay a set premium that typically goes up as you age, until it
hits a specified maximum. To receive benefits, the buyer must need assistance
with at least two of six “activities of daily living”: bathing, dressing,
continence, eating, toileting and “transferring,” such as moving from a
wheelchair to a bed. Like most forms of insurance, if you don’t use the
benefit, you lose it; the insurance company keeps your money. And long-term
care insurance is both expensive (costs have spiked over the years) and
difficult to find. Fewer and fewer insurers are issuing policies, and in some
states, it is simply unavailable.
Other insurance possibilities
But the insurance industry is offering alternatives, including “living benefits” products that combine life insurance with long-term care. They allow you to accelerate your policy’s benefits to get much-needed money if you suffer a terminal, chronic or critical illness. If you don’t need care, the money goes to your heirs or your estate when you die via the life insurance death benefit.
A
similar solution is asset-based long-term care insurance. Instead of paying
premiums, you deposit a lump sum of money with the insurance company. If at
some point you require care, the insurer will pay you benefits based on how
much you deposited and how old you were when you purchased the policy, the
earlier you start the more benefits you get for your dollar. If you ever decide
you don’t want the policy, you have options for getting your money back. And if
you die without needing care, there is still a death benefit for your heirs.
Annuity options
There
are also annuities with long-term care benefits.
Some
work much like the asset-based life insurance policies: You put in a lump-sum
deposit and you’ll receive some interest on that. Then, if you need long-term
care, a multiplier is applied to the cash you put in. For example, if you put
in $100,000 and you need long-term care, that amount blossoms to $300,000 to
put toward long term care expenses.
Another
annuity option offers an income rider. You put in a certain amount of money and
the company will, depending on your age and when you want to start taking
distributions, guarantee a certain rate of income. But if you need long-term
care, that income is doubled. So, if you had an annuity that guaranteed $40,000
annually in income, it would double to $80,000. It may not cover all your
expenses, but it certainly will help.
As a last resort
If
you didn’t plan for long-term care costs and now it’s too late to get coverage
— you’re too old, or sick or it’s prohibitively expensive — talk to an
elder-care attorney. He or she can help you protect as much of your estate as
possible from Medicaid’s requirement that you spend down your assets.
Long-term
care planning is something a lot of people ignore. They think they won’t get
sick, or that they’ll die quietly in their sleep without ever spending a day in
a nursing home or needing aid. Unfortunately, the statistics say that the
majority of people will need some sort of care assistance, and planning for
that is important.
But
it’s an important part of any retirement and estate plan. And the sooner you do
something about it, the more benefits you’ll get for your dollars. If you wait,
qualifying will become more difficult and the breadth of products will start to
disappear.
If
you already have a traditional long-term care insurance policy, it could be the
best investment you ever made. But if you’re still looking for a way to cover
yourself as you age — and most Americans need help with that — these options
are worth looking into with assistance from your financial professional.
Investment advisory services offered through Global Financial
Private Capital, LLC, an SEC Registered Investment Adviser. SEC registration
does not imply any level of skill or training.
This
article was written by and presents the views of our contributing adviser, not
the Kiplinger editorial staff. You can check adviser records with the SEC or
with FINRA.
Jared M. Elson, Investment Adviser Managing Partner, Regent Wealth Management is a partner at Regent
Wealth Management. Jared is a Series 65 licensed Investment Adviser
Representative (IAR) as well as a licensed life and health agent. He shares his
investing strategies as a frequent contributor to TV news programs, books and
magazines, and on the "Retirement Symphony" radio
show. Investment advisory services offered through Global Financial
Private Capital, an SEC-Registered Investment Adviser. SEC registration does
not imply a certain level of skill or training. Regent Wealth Management and
GFPC are not affiliated entities. One or more individuals at Regent Wealth
Management are investment adviser representatives of GFPC and [may] receive[s]
[JA1] compensation in exchange for soliciting investment advisory services
provided by GFPC on behalf of Regent Wealth Management clients.
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