Get ready for future long term care needs
The Ostrich strategy of ignoring your future long term care issues rarely works out well for most people. The wealthy can finance the best care and the very poor will be taken care of with public funds but the vast majority of Americans will have a huge financial challenge. Unfortunately, the cost of eldercare living arrangements is very expensive and the quality varies greatly. Neither Medicare nor health insurance covers these costs. It must be financed privately.
According to a report from Genworth Financial, the median annual bill for care in an assisted living facility is $43,200 ($118 per day) for a shared room. A private room in a nursing home costs $91,000 a year ($249 per day). However, in some states such as California, the cost is considerably higher, often exceeding $200 per day and up to $300 for the elite homes...
Those accustomed to shopping for the best deal may be sadly disappointed because this is one of the times that quality matters. Living in an assisted care facility is different than saving money on a vacation by staying in a cheap motel as a place to sleep while you preserve money for touring and restaurants. There is no touring and food is provided in a group setting without reserved tables or fancy menus. Quality rooms and a well-trained and caring staff to assist with issues such as walking, dressing, toileting and other personal needs comes at a price. These services are provided to residents who are dependent on others because they are unable to care for themselves. Many have lost their cognitive abilities because of dementia and may even be unaware of the quality of their care. At such times, a budget facility could jeopardize your health. Moreover, as one’s medical conditions advance the cost increases further.
Since the need for such care doesn’t normally occur until the seventh or eighth decade of life, many defer planning until such care becomes necessary. The strategy seems intuitive but in reality, the premiums for a long term care policy increase with age and the likelihood of an insurance company rejecting your application or premium increases with declining health. They prefer applicants who are in good health who may not need to collect on the policy for many years, even though the premiums will be much lower.
For people with a home or condo that could be sold to pay for their future care may be a viable option if they are single or widowed, especially if they have no children or no concern about leaving money to their families. Married couples will still need their home unless or until both spouses/partners move into a facility together. For those with a family member or close friend who is willing and able to provide care for free or a modest cost may be a solution. But for most people, a form of insurance will best provide for their future care and still preserve other assets for their families. In some cases, their families may find it in their own best interests to help fund the premiums.
Everyone’s situation is different. Before selecting a solution, one should begin with a review of their financial resources including savings, investments, pensions, insurance and other assets. Conversations with a spouse or partner, children, family and friends about the type of things you want or need in the future. A visit to a few LTC facilities is often very helpful to decide what you would want for yourself when the time comes. As they say, a picture is worth a thousand words.
When these matters are completed, a review of your will or trust will confirm that your planning in the past still represents your feelings today. If not, schedule an appointment with an estate planning attorney to amend the documents, or if no documents were prepared, draft a will and trust, advance directive forms, or other forms as necessary.
The cost of long term care policies is normally reduced by 25% for couples. Both spouses and partners qualify for the discount. For those who still need life insurance, several newer hybrid life insurance policies have long term care riders that are very cost effective, easier to qualify for, and at cheaper rates than separate LTC policies. Owners of variable annuities can exchange them on a tax-free basic for some newer annuities with LTC riders. The last two options eliminate the risk of future premium increases.
Not everyone will need future long term care assistance but it is better to plan ahead than to be surprised and unprepared. I hope that this has been of some help to think about and prepare for the future based on your personal priorities.
Marv Kaye, J.D., CFP®
Kaye Capital Management