Published by Kerry Meath-Sinkin
Long-term care is a range of services and support for your personal care needs. Most long-term care isn’t medical care, but rather helps with basic personal tasks of everyday life, sometimes called activities of daily living.1 Later in life, medical conditions can arise that put financial strain on a person who no longer has an active source of income from their job. Without planning ahead, an emergency situation can upend your retirement or cause financial and emotional strain to your family.
It is believed that 70% of people over the age of 65 will require some type of long-term care service.2 With the average lifespan of males around 76 and females around 81, this type of care will likely become even more important for women.3 Among the population for adults 65 and older, around 35% will eventually enter a nursing home.4 However, most long-term care continues to be provided by friends and relatives with over 65.7 million people providing care to someone who is ill, disabled, or older. 5 The bottom line is that we all need to have a plan, especially once you reach your late 50’s and early 60’s.
Are you caring for a loved one who relies on long-term care? This free guide can help you and your family financially and emotionally prepare. Click here to download the guide.
Does Medicare or Medicaid pay for long-term care services?
Medicare provides support in limited situations when an individual is confined to a home, requires intermittent support from a Medicare-certified health agency as prescribed by a doctor, and is expecting a full recovery. Full benefits last only 20 days, and partial support ends after 100 days. Medicaid may pay, but eligibility is based on modified adjusted gross income, and requires you to spend down your assets to extremely low levels before Medicaid will pay the bill.
What can you do?
Long-term care insurance is not necessary for everyone, but having a plan for funding long-term care is essential. There are different ways to fund your long-term care costs. These methods include
1) Self-funding with personal assets,
2) Traditional long-term care insurance, and
3) Long-term care insurance combined with life insurance or an annuity (hybrid policy).
The big question is, how do you know which method is going to be the most appropriate in your situation? We wanted to provide you with a list of questions that we find helpful as you think through different long-term care planning options.
- Do you have someone who will help take care of you if you need care?
- Where will you live when you retire?
- What is your medical history, including your family’s medical background? Are there specific conditions that may run in your family?
- What other assets do you have to pay for long-term care? Depending on what other assets you have at your disposal, you might want a policy that would pay for the total cost of long-term care, or just enough to help co-insurance the risk.
- Do you have dependents that rely on you for care?
- What do you need from a long-term care policy? Do you want to consider living in a nursing home, or would you prefer to stay at home with assistance? Either way, there are many different ways your long-term plan could look.
The way you think through these options will influence the direction you want to take with financing your long-term care.
What are your options for funding long-term care?
As with all decisions in life there are tradeoffs to each funding option. Below you will find a starting point for what might make sense in different situations. Of course, we always recommend having a more in depth discussion with your financial planning team.
Pros: You don’t lose any money if there is not a need for long-term care. Assets that may have been used for long-term care can be invested.
Cons: Long term-care expenses will be funded through distribution of personal assets. Your household assumes the full risk of costs, which can get pricy. It can also force family members to take care of you, which can sometimes be difficult and cause additional family hardships.
Traditional Long-Term Care Insurance
Pros: Minimizes household risk because insurance is in place to cover long-term care experiences. Premiums may be tax-deductible.
Cons: If you don’t have a need for long-term care, the funds could be viewed as a waste of money. Managing premiums is difficult, as there have been historically unmanageable premium increases. Patients may still be left to pay for items that are not covered.
Pros: Often you pay an upfront premium for hybrid insurance, this guarantees against future premium increases. Also, death benefits are available, which means unused money can be passed to your heirs. Hybrid insurance often has fewer underwriting requirements than with traditional long-term care insurance. Finally, you can also fund the policy with an existing appreciated annuity, which allows you to liquidate future gains on a tax-preferred basis.
Cons: Large upfront premium removes assets from your investment portfolio. If interest rates rise, the policy interest rates may fail to keep up. When interest rates don’t keep up with inflation, these policies may not be able to pay competitive fixed income rates of return.
What is best for you?
As you can see there isn’t a one-size fits all answer. We hope that these considerations will help you to make a more informed decision for your future. Please talk with us or your financial advisor about the decision that is right for you.
Do you still have questions?
At Meath Wealth Advisors, our M Guidance process allows us to understand what types of planning strategies make sense for you. What is the potential impact of today’s financial decisions on your future wealth? For example, what kind of impact does downsizing your home, buying a car, paying for a loved one’s education, or purchasing a long-term care policy have on your future? The M Guidance helps you make these trade-offs and optimize your decisions. Click here to learn more about M Guidance.
- “How Much Care Will You Need?” LongTermCare.gov. https://longtermcare.acl.gov/the-basics/how-much-care-will-you-need. html. Web. 21 February 2017.
- “Mortality in the United States, 2015.” NCHS Data Brief No. 267. December 2016.
- The Retirement Project (2007) Meeting the Long-Term Needs of the Baby boomers: How Changing Families Will Affect Paid Helpers. Retrieved (January 2015) from https://www.urban.org/UploadedPDF/311451_Meeting_Care.pdf (link is external)
- National Alliance for Caregiving and AARP (2009) Caregiving in the U.S, National Alliance for Caregiving, Washington D.C .
Kerry Meath-Sinkin is a registered investment advisor and financial planner based in Minneapolis. She works with clients not only in the Twin Cities, but nationwide. Kerry believes in a holistic approach to finance. She works with her clients to develop a practical plan with their finances, while also working on their inner relationship with money. Together, these aspects allow clients to feel healthy, abundant, and free. Kerry also has a passion for healthy living, is a certified Ayurvedic practitioner, and public health educator. Click here to learn more about Kerry.