Do You Have a Plan in Place for Long-Term Care?

(Image credit: Miodrag Gajic)

An illness that requires long-term care can deplete your nest egg, yet it’s a risk many people often overlook.

Death of a Spouse: The Under-Discussed Risk in Retirement

After all, retirement is supposed to be about finally having the freedom to do the things you’ve always wanted — not about getting sick.

But according to the U.S. Department of Health and Human Services, about 70% of Americans who turn 65 will need long-term care at some point. If you’re married, the odds are pretty good that at least one of you will need long-term care.

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And it’s important to note that the costs involved won’t necessarily be limited to medical care, but could include assistance with the basic personal tasks of everyday life, such as eating, bathing, dressing, using the toilet or dealing with incontinence and transferring to and from a bed, chair or wheelchair.

These “activities of daily living” often require hiring custodial care (non-medical care that may include preparing meals or helping with medications) or skilled care (treatment by licensed professionals, such as nurses or therapists).

Of course, the costs for these services vary widely, depending on where you live and from whom you’re receiving care, but none of the options are inexpensive. Genworth’s annual Cost of Care Survey found that in 2016, the national median rate for home health aide services was $20 per hour; a day at an adult day care center was $68; a month at an assisted living facility cost $3,628; and a private room at a nursing home was $253 a day.

Paying for Long-Term Care

If you think Medicare will pick up the tab, think again. It will pay for some part-time services for those who are homebound and for short-term skilled nursing care. And it may cover part of the first 100 days in a nursing home. But it won’t help with ongoing care. (For more information about Medicare coverage, visit www.LongTermCare.gov. )

So how do people come up with the money?

If you’re very wealthy — and by that I mean with assets totaling in the millions of dollars — you probably have the means to cover the costs yourself. If you’re very poor, you likely can count on your state’s Medicaid program. (Although you’ll lose control over who you see and where you stay.) But for most people in between, it’s challenging.

Some may try to qualify for Medicaid by transferring their assets out of their name. But, believe me, state agencies are wise to this, and most have imposed a look-back period of 60 months. If they find something amiss, they’ll bring those assets back into your estate, and you’ll have to spend them down to a required limit before you’re eligible for assistance.

Any distributions you get in your name — whether that’s Social Security or a pension, etc. — will go to pay for care. Your spouse will get to keep any distributions that are in his or her name, and you can stay in your home. But when the surviving spouse dies and whatever assets were left are liquidated, you can be sure the state will be back for its money.

So, not a great option.

Tools to Help You Prepare Now

For a long time, the best alternative was to purchase a traditional long-term care insurance policy. But these days the premiums can be steep — especially if you’re older, already have health problems or want more benefits — which puts off many pre-retirees and retirees. And, much like auto insurance, if you don’t get sick and you don’t use it, there’s no way to recoup your premium payments.

Fortunately, the insurance industry is coming out with more options to assist with the expenses associated with long-term care. Keep in mind that there are usually additional premium requirements or costs associated with the purchase of these additional options, and all insurance guarantees are backed by the financial strength of the issuing insurer.

One possibility is a permanent life insurance policy that allows for an acceleration of the death benefit to help cover the costs associated with qualifying long-term care expenses. If you use it, the money is subtracted from what your beneficiaries will receive when you die. If you don’t use it, you may pass on a tax-free death benefit to your loved ones. Or, if you realize you don’t want it anymore, you can surrender the policy for its cash value. *

Annuities may also offer benefits to help cover long-term care expenses. Depending on the annuity, the long-term care benefits may be built into the policy, or they may be available through an additional rider, which may or may not come with an added fee. Generally speaking, an annuity that offers LTC benefits usually does so through an accelerated payout of the account value, up to a limit or for a specified number of years. And again, if you don’t need it, you can pass it on to your beneficiaries or cash it out. At the very least it helps protect your assets by covering some of the costs of long-term care, but you’re still putting your money to work in retirement.

And that, of course, is always the goal: to hold on to your money and to grow it if you can.

You can’t ignore the possibility that you or your spouse may someday need care — and the money to pay for it. To help safeguard your nest egg, it makes sense to prepare a strategy to address the potential need for long-term care. And the sooner you do, the less stressful it can be.

Talk to your financial professional about different long-term care strategies, and get this important piece of your retirement plan into place.

*Living benefits are available in the form of accelerated death benefits. These benefits are NOT a replacement for long term care (LTC) insurance. Living benefits and LTC riders are not available on all life insurance products and may not be available in all states. Accelerated death benefits and LTC riders are subject to eligibility requirements.

Kim Franke-Folstad contributed to this article.

Disclaimer

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.

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Charles Ragonese is president of Mountain Peak Financial Inc., which he founded in 1992. He is a licensed insurance agent and has passed the Series 65 exam and is an investment adviser representative in California. Ragonese also holds the designations of Chartered Retirement Planning Counselor (CRPC) and Certified Fund Specialist (CFS), and is a member of the National Association of Insurance and Financial Advisors (NAIFA). Mountain Peak Financial, Inc. focuses on retirement planning.

Investment advisory services offered only by duly registered individuals through AE Wealth Management LLC (AEWM). AEWM and Mountain Peak Financial Inc. are not affiliated companies.