Safeguarding Your Retirement with a Long-Term Care PlanNovember 3rd, 2019 by Jim Allen
November is Long Term Care Awareness Month so we wanted to discuss this important issue in this week’s article.
One of the biggest worries of people entering retirement is the prospect of needing long-term care due to a chronic illness or mental impairment. In fact, according to a Nationwide / Harris Poll survey, 73% of people surveyed were afraid they would not have enough money to cover long-term care expenses. Unfortunately, the concern is real as roughly 70% of people over age 65 will need long-term care at some point in their lives.
Because the possibility is so high and the costs are so large, many people just don’t want to address the situation. In that same Nationwide survey, 78% of the people had not made any plans to address possible long-term care needs. And the costs are indeed high, roughly $4,500 a month for home health care or $7,700 a month for a semi-private room in a nursing home (based on avg costs for Orange County, CA). Even if people do not need the direct costs of a nursing home or a home health aide, the indirect cost of a family member providing unpaid long-term care support can be tremendous.
There are roughly 34 million adults providing unpaid care to older adults in the U.S. In fact, about 83% of the help given to older adults comes from family members or friends. The majority of these unpaid caregivers are female and about 1 in 10 are themselves over the age of 75. Most provide the care because there are no other options. The toll this takes on an unpaid caregiver and their family in the form of chronic stress, lost wages and family disagreements is one of the largest worries of people needing long-term care support. Having a long-term care plan in place early in retirement can help alleviate some of the stress and worry about becoming a burden to family members in the future.
For those people who may need to provide long-term care support to an aging parent, their retirement plans can be devastated as much as the parent’s needing their support. As mentioned above, caregivers may have to curtail or even eliminate their own employment to take care of their parents, or may have to use some of their own funds to pay for the costs of that support. So, not only do the people nearing retirement need to have their own long-term care plan in place, they also should make sure that a long-term care plan is created for their parents. “Parent Proofing” your retirement plan should be part of the comprehensive planning a financial advisor provides.
Having a long-term care plan does not mean just buying long-term care insurance. There are other components of a well thought plan like modifying a home to “age in place” that can delay or maybe even avoid the need to enter a nursing home or assisted living facility. Other components of a well-designed long-term care plan include establishing living and driving transition plans, making sure health care and financial power of attorney documents are up-to-date, and discussing caretaking decisions and determining caretaker roles up-front. Finally, addressing the financial aspects of paying for long term care should be part of the plan.
When it comes to paying for the costs of long-term care, there are several options available. The financing decision should not be made in a vacuum and instead should be part of the comprehensive retirement income plan. Generally, because the costs of providing in-home or nursing home care are so high, transferring the risk via insurance can be a cost-effective strategy. While most people are familiar with traditional long-term care insurance, many are reluctant to purchase it, either because of the cost, the recent trend of insurers raising premiums or because of the “use it or lose it” nature of the policy. Long-term care insurance is very much like other forms of pure insurance such as auto and homeowners in that benefits aren’t paid unless long-term care is needed. In recent years, other types of products have been introduced that may be more flexible including hybrid long-term care / life insurance policies or life insurance policies that have long-term care or chronic illness riders. We are always evaluating the best options for funding long term care needs for our clients.
In addition to transferring the risk through insurance, other options can include self-funding, using a reverse mortgage, buying into a continuing care retirement community and evaluating the availability of any governmental benefits. All the possible options available need to be considered and used in conjunction with one another to create a well-designed plan. Putting thought not only to your own personal long-term care plan but also the potential needs of your parents can help provide a more secure retirement while also alleviating the stress and family conflict that often comes from not planning.