Can You Afford $72,000 a Year for Long-Term Care?
That's what one of my own family members pays, and it's not unusual. Everyone needs a solid long-term care plan. Here are four ways to layer yourself with protection.
I’ve seen what Alzheimer’s disease and dementia can do to a family.
Six members of my wife’s family have had Alzheimer’s. My sister-in-law started her journey with the disease when she was just 55; she is now 65. My mother-in-law had it for 16 years. One of the things I’ve learned is that it is an extremely slow goodbye.
People tend to think that you get the disease for three or four years and then you pass away. That’s not always the case. Medical advances are helping people live longer, and some people with Alzheimer’s survive for decades.
That brings about all types of challenges, not only for the person who is sick but also for the family members who love them. And particularly for the caregiver, who is usually the spouse.
Frankly, my concern is more focused on that caregiver than the one needing the care. The person with dementia may not even be aware of what’s happening. But eventually, everything the caregiver does is geared to that loved one — from paying the bills to being there around the clock without a break. It wears you out.
If you and your spouse can prepare for the possibility of long-term care ahead of time, you’ll potentially be better off. You might not ever need to implement your long-term care plan, but having it in place is an important part of planning. Once problems start, options become limited, and it’s hard to make good choices when you’re in a reactive mode.
Before making any moves at all, I recommend talking to a financial adviser who is well-versed in long-term care solutions — someone who has dealt with these issues many times. You’ll also want to consider meeting with an elder law attorney who can help protect your assets when the bills start coming. That’s especially important for the surviving spouse.
And remember, it isn’t just Alzheimer’s or dementia that could devastate your family and your finances. It could be Parkinson’s. It could be a debilitating stroke. It could be a car accident. We think these are worries for older people, but health problems can happen at any age.
As an adviser, I always like to let clients know what many of their options are, including:
Traditional long-term care insurance.
Much like term life insurance, with long-term care insurance, you pay a stated premium. You have to be able to afford it (it can be expensive, and premiums may increase over time), and you have to be healthy enough to qualify. The insurance contract will state how you qualify for benefits, but often the buyer must need assistance with at least two of the six activities of daily living (ADL) — such as bathing and eating — as certified by a doctor. Many people don’t start off needing nursing home care, so be sure your policy will pay for in-home care or an assisted-living facility. Coverage will vary by policy, but frequently lasts for five or six years, and then you have to find another way to pay your bills. So even if you go with a long-term care policy, you might consider “layering” other options.
A fixed index annuity with enhanced benefits.
One of your layers of coverage could be a fixed index annuity with a rider that offers enhanced benefits if you become ill. Again, be sure of what you’re getting; all annuities are not created equal. Some will pay 25% more than the income stream you were receiving, some pay 1.5 times your normal amount, and others will double it. So, for example, if you were receiving $20,000 annually from your annuity payout and you could no longer perform two of the six ADLs, you would receive $40,000 annually, usually until the qualifying account balance is depleted or the maximum amount of time, whichever is earlier. (After that, the payout would go back to $20,000.) You can roll over funds from your IRA, 401(k) or 403(b) tax-free to fund this annuity, and you can fund it with money from your Roth IRA or bank account as well. Riders are generally optional and may come with an additional cost. Make sure to consult a professional to best avoid incurring penalties.
Life insurance with living benefits.
The life insurance industry also offers an opportunity to accelerate your death benefit to get the money you need if you suffer a terminal, chronic or critical illness. The plus if you don’t need care, the death benefit will go to your beneficiaries when you die. There are several types of policies available, so be sure to work with an experienced insurance professional if you decide to use this alternative or consider it as one of your layers. The addition of an accelerated death benefit rider may require an additional fee, and they are subject to eligibility requirements. The amount of the death benefit that may be accelerated will vary by policy and will directly reduce the amount the benefit paid to the beneficiaries at the insured’s subsequent death.
The goal of these investments is more focused on income, not growth, which could add yet another layer of money when it’s needed.
One of the most important things I tell the people I meet with is that if you sense something is happening to your loved one, don’t wait. If you haven’t already, get your plan together and go to a doctor.
Don’t overestimate your ability to care for your spouse by yourself. I once had a physician client who was sure she could manage her husband’s illness — after all, that was her profession. After two years, she called to say she couldn’t do it alone anymore.
Closer to home, my father-in-law cared for his wife for years — until he had a stroke. Then there were two people who needed care.
And don’t underestimate what it will cost to get help. My sister-in-law’s current bill is about $72,000 a year, and that doesn’t include costs for the rest of the household. Think about all your normal bills plus $72,000, and multiply that times 10 years or so. Could you handle that financially?
Unchecked and unplanned, long-term care costs could wipe out your nest egg. Medicare covers a limited amount of up to 100 days of the costs, and to qualify for Medicaid, you have to spend down your assets to approximately $2,000 in most states.
So it’s important to be proactive.
Talk about it with your family, meet with an experienced planner and get with an elder law attorney to look at all your options. And then pray that you never have to use the plan you put in place.
Kim Franke-Folstad contributed to this article.
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About the Author
President and CEO, Strategic Estate Planning Services, Inc.
Mark Pruitt is the president and CEO of Strategic Estate Planning Services, Inc. Based out of Dallas, Texas, he serves on the National Summit Advisory Board and is a speaker for the National Association of Insurance and Financial Advisors (NAIFA). Mark was selected as National Advisor of the Year by Senior Market Advisor in 2012. He is an Investment Adviser Representative and insurance professional.