Long-Term Care Month: What’s Your LTC Plan?

September 05, 2019
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If someone told you that you had a glaring gap in your retirement plan, would you make an effort to remedy the problem as soon as possible? Unfortunately, many Americans have just such a blind spot in the form of long-term care, with only 1 in 5 adults making the effort to finance their future long-term care expenses.(1) Since more than half of people turning 65 will need some form of long-term care during their lifetimes, it’s critical to have a plan to pay for these costs.(2)

November is long-term care awareness month, making it an ideal time to start thinking about your long-term care plan and researching your options. Here are some factors to think about when crafting your plan, as well as a few strategies to help you finance this piece of your retirement plan. 

How Much Will Long-Term Care Cost?

Long-term care costs are so high that they could potentially wipe out a bulk of your retirement funds. On average nationally, it costs $275 per day or $8,365 per month for a private room in a nursing home.(3) To make matters worse, because of their longer life expectancy, women pay significantly more than men for long-term care. The average amount of time women require long-term care for is 3.7 years (or around 44 months), adding up to $368,060 in expenses in today’s costs for that private room.(4) For men, who need long-term care for an average of 2.2 years (or around 26 months), that equals $217,490. 

And costs are only projected to increase. In the past five years, long-term care expenses have risen by about 3%, with a big jump in prices from 2016-2017.(5) By 2028, the average cost is expected to increase to $5,376 per month for assisted living,(6) compared to $4,000 today.(7) These costs can vary based on the level of care and amenities needed, as well as the size of the room and the location, so your first step in making your long-term care plan is to decide what type of care you prefer. 

What Type Of Care Do You Prefer?

If you have a family history or early signs of Alzheimer’s or dementia or if you suffer from a chronic disease that will require ongoing care or daily assistance, look into facilities that offer the care you’ll need, and share your thoughts with your family. Would you prefer to live in a nursing home or would you like nurses and assistants to come to your residence? Do you want a religious community of care? There are several preferences to take into consideration when considering your long-term care plan. 

Having the option to make these choices yourself lends much-needed autonomy to your long-term care plan. If you wait until you need it, you may not be in good enough health to make the decision or the size of your savings might determine the care you receive. Whether you’re worried about potential health concerns or want to protect your hard-earned wealth, it’s important to understand the long-term care insurance options available to you and whether or not a policy makes sense for your lifestyle and needs. 

Your Long-Term Care Plan

Long-term care coverage isn’t cheap, but it pales in comparison to long-term care costs. Here are some options to consider when creating your long-term care strategy

1. Traditional Long-Term Care Insurance

With traditional long-term care insurance, you pay a premium in exchange for the ability to receive benefits if they are needed. If you need long-term care at some point, the policy provides you with money to pay for it. However, if you never need long-term care, then you receive no benefits. It’s a “use it or lose it” policy.

Just like any insurance policy, you will have some coverage choices to make.

Customized Coverage

You can choose the level of insurance you want and select the daily benefit amount for care in a nursing home. You can also add home-care coverage if that is a priority for you. In order to choose the right coverage amounts, you need to know what the cost of long-term care looks like in your state. For example, a private room at a nursing home in Maryland will cost an average of $9,817 a month, and hiring a home health aide could set you back over $59,000 for the year.

Length Of Coverage

You must also decide on the length of time you want the benefits to be paid. Common options are one, two, three, or five years, or for your lifetime. Logically, the longer the benefit period, the higher the premiums you will need to pay. 

Benefit Stipulations

Your policy will also indicate “benefit triggers,” or conditions which must exist to receive benefits from the insurance company. A tax-qualified plan only pays benefits once you are unable to perform two of six activities of daily living without substantial assistance for at least 90 days, or have a cognitive impairment like Alzheimer’s. Non-tax-qualified plans may have less restrictive benefit triggers.

Inflation And Premiums

If you want, you can have your benefits increase with inflation to match future care costs. It is also important to note that premiums can increase as they are not usually set in stone.

2. Life Insurance With A Long-Term Care Rider

With a traditional long-term care policy, people sometimes feel that if they buy it and don’t use it, they would have wasted their money. Because of this, several hybrid products have emerged. One very popular solution is a life insurance policy with a long-term care rider. This strategy is enticing because if long-term care is needed, the funds are available through your policy’s death benefit. If you don’t spend the total benefit available, your beneficiaries will receive the balance upon your death, thus no wasted money. 

If you need life insurance, getting your long-term care coverage as a rider may be a good option. This way, someone will be benefiting from the premiums you are paying, whether it is you or your heirs.

3. Annuity With A Long-Term Care Rider

If you don’t need life insurance, another combination product may be better suited to your situation. If you purchase a variable annuity, you may have the alternative of adding a long-term care rider onto the contract. Since 2010, the IRS allows for the long-term care portion to be used tax-free.(8)

After purchasing the annuity, you would select the amount of long-term care coverage you want, often two to three times the face value of the annuity, as well as the length of time you want coverage. Finally, you have to decide if you want inflation protection. 

This option makes money available to you if you need long-term care. Otherwise, you can cash out the annuity when it matures (in which case you would lose your long-term care coverage) or let it accumulate and ultimately pass on the assets to your heirs. 

Obtaining long-term care coverage through an annuity can be appealing because it is generally less expensive than stand-alone insurance and you can receive coverage without medical underwriting. Annuities tend to be less common than the other choices, though, because of the current low-interest rates and the large up-front investment.

4. Save On Your Own

Consider starting a savings plan specifically for future healthcare needs. One option is to create a separate, high-yield savings account and contribute a specific amount every month, building a contingency fund for whatever healthcare expenses come your way. If you end up not needing long-term care, the money is still yours and can be used for your living costs, unexpected expenses, or an inheritance for your heirs. 

Be Prepared

Regardless of where you are in life and the financial obstacles you face, the important thing is that you start planning for this aspect of retirement. Thinking about the need for long-term care can be deeply unsettling and confusing. That’s why I am here to help with comprehensive financial planning services. If you have questions about your long-term care options and want to make sure you have the coverage you need, call my office at (949) 221-8105 x 2128 or email me at michael.loo@lpl.com

About Mike Loo

Mike Loo is an independent financial advisor with more than 20 years of experience in the financial services industry. His mission is to make a meaningful impact on the lives of clients and the people they care most about, help them make educated decisions with their money, and build a strong financial foundation for both themselves and their next generation. Mike is committed to meeting a high standard of excellence, taking the time to listen to clients’ needs, and designing strategies that aim to help clients save money and reduce debt. He seeks to fit a client’s investments into their life and educate them so they’ll understand their investments. To learn more about how Mike may be able to help, connect with him on LinkedIn, call his office at (949) 221-8105 x 2128, or email him at michael.loo@lpl.com.

Mike Loo is a registered representative for LPL Financial (LPL) and an Investment Advisor Representative (IAR) for Trilogy Capital (TC). Securities offered through LPL, Member FINRA/SIPC. Investment advisory services offered through TC, a Registered Investment Advisor. TC markets advisory services under the name of Trilogy Financial (TF), an affiliated but separate legal entity. TC and TF are separate entities from LPL.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

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(1) https://www.advisortoday.com/2017/10/26/ltc/

(2) https://www.morningstar.com/articles/879494/75-mustknow-statistics-about-longterm-care-2018-ed

(3) https://www.genworth.com/aging-and-you/finances/cost-of-care.html

(4) https://longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html

(5) https://www.genworth.com/dam/Americas/US/PDFs/Consumer/corporate/cost-of-care/131168_081417.pdf

(6) https://www.fool.com/investing/general/2017/06/10/your-2017-guide-to-long-term-care-and-long-term-ca.aspx

(7) https://www.genworth.com/aging-and-you/finances/cost-of-care.html

(8) https://longtermcareinsurancepartner.com/blog/using-annuities-to-pay-for-long-term-care