One of the first things I realized when I started in this business was the need for long-term care insurance. It was clear then, and is still true today, that living longer increases the chances of needing assistance with normal activities of daily living. Losing the ability to physically take care of oneself can happen at any age, but the highest risk is during the end-stage of retirement.
The cost of long term care, whether at home or in a facility, is extremely high as is the likelihood of need. Studies suggest that over 70% of those over the age of 65 can expect to use some form of long-term care. Medicare does not pay for long-term care, or what they call custodial care. In Texas, Medicaid only pays for long term care if you have little to no income and no other options. Veterans can apply for assistance with some home and community care costs, but only if they are eligible for VA medical benefits.
Due to these harsh facts, over the years I have assisted and encouraged clients to purchase long-term care insurance. Unfortunately, long-term care insurance has not turned out to be the end-all solution to the problem for these reasons:
- Increased cost. Long-term care insurance has skyrocketed in price to the point where it is becoming more and more difficult to justify.
- Limited markets. Insurers, due to the high claims rates and increased care costs, have exited the long-term care market in droves. Fewer carriers means less competition and fewer options.
- Reduced benefits. Affordable coverage options today do not have the same inflation protections, or easy indemnity payouts that were once available.
- Poor claims service. With losses mounting, many carriers have cut their claims services departments drastically to reduce costs. This not only results in client frustrations, but also draws out the claims process; in some cases preventing the claim from being paid at all.
I think everyone should still carefully consider long-term care insurance, but with the understanding that the above problems exist. In some cases, the answer may lie elsewhere and in all cases it makes sense to mitigate long-term care costs with other strategies. Here are some ideas:
- Save more towards retirement. In your planning, assume there will be long-term care costs so you can save and invest accordingly. Many financial planners use staged retirement phases with different income needs in each phase of retirement to better plan for things like long-term care. If your retirement plan barely works, then you have not left yourself enough room for contingencies like long-term care.
- Fund an HSA account towards future long-term care costs. If you have an HSA eligible medical health plan, you can save money tax free for health-related expenses, including long-term care. Sock money away in your HSA account, take the tax deduction, and then invest it tax free for later…..much later.
- Convert and/or fund a ROTH IRA. No HSA options available? Try to build up a bucket of ROTH-IRA money for end-life-stage or long-term care costs. You can convert part of an IRA to a ROTH, or in most cases your company 401(k) plan will allow ROTH contributions without having to meet income guidelines. ROTH money grows tax free so use it towards the end of retirement in order to maximize the compounding effects. If you end up not needing your ROTH, then it passes to your heirs on a much more tax advantageous basis than regular IRA’s.
- Exercise and diet. The most glaringly obvious solution. For you and your spouse, a healthy lifestyle will significantly mitigate the risk of long-term care. Maintain a healthy weight and exercise regularly so you can extend and enjoy the fun part of retirement!
- Family care. Communicate effectively with your kids and other solutions may present themselves. For many, moving in with kids is a terrible idea, but for others, it could be a gift to everyone. My wife often talks fondly of the years her grandmother lived with her growing up.
- Look into retirement communities. Retirement communities do not provide long-term care, but they do provide a safe environment that makes daily living easier – extending the time you can remain in your home and independent. In addition, such a move can possibly free up equity in your current home that can be designated towards living costs like long-term care.
- Reverse mortgages. Ideally, I would prefer clients avoid reverse mortgages, but in some cases they can help solve the long-term care problem. If you are adamant about aging in place, you could access the equity in your home through a reverse mortgage to pay for in-home long-term care. If you go this route, find a reputable specialist and try to involve your kids in the decision, as it will impact them once you are gone.
As you can see, there are many ways to take action on the serious dilemma of long-term care to reduce its impact on you and your family. It is most important that you be proactive. Do not wait until you and your spouse need care, address these steps now so you can enjoy your retirement without fear and uncertainty looming over you. We can help. Simply contact us to discuss.
Rob
