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What Is Your Long-Term Care Plan?

What Is Your Long-Term Care Plan?

| November 28, 2018
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Planning for retirement is arguably the most important financial action you will take in your life. Retirement planning is much more than just making sure you have enough money in the bank to pay rent and go on some trips in your golden years. Proper retirement planning involves taking into account a variety of factors and countless steps, which can quickly become quite overwhelming and potentially lead to missed elements.

Planning for retirement is arguably the most important financial action you will take in your life. Retirement planning is much more than just making sure you have enough money in the bank to pay rent and go on some trips in your golden years. Proper retirement planning involves taking into account a variety of factors and countless steps, which can quickly become quite overwhelming and potentially lead to missed elements.

One of the most common planning elements that ends up getting overlooked is long-term care. Statistics show that only 1 in 5 adults even make any effort toward financing their future long-term care expenses. (1) And since an average 63% of today’s 65-year-olds will require some form of long-term care during their lifetimes, it’s vital to have a plan in place to pay for these costs. (2)

November is long-term care awareness month, making today a perfect day 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.

The Cost Of Long-Term Care

Long-term care costs are so high that they could potentially wipe out a bulk of your retirement funds. In fact, the national average costs for long-term care in the United States comes in at a whopping $225 a day, or $6,844 per month, and that is just for a semi-private room in a nursing home. (3) Furthermore, because of their longer life expectancy, women pay significantly more 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 $352,440 in expenses. (4) For men, who need long-term care for an average of 2.2 years (or around 26 months), that equals $208,260.

And costs are only projected to increase. In the past five years, long-term care expenses have jumped about 3%, with a big jump in prices from 2016-2017. (5) By 2026, the average cost is expected to increase to $4,876 per month for assisted living, (6) compared to $4,000 today. (7) Statistics project that the number of people using paid long-term care services in any setting (e.g., at home, residential care such as assisted living, or skilled nursing facilities) will likely double from 13 million people in 2000 to 27 million people by 2050. (8) 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 own long-term care plan is to decide what type of care you prefer.

Long-Term Care Options

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

Many people grieve the loss of independence and autonomy when their health suffers in the latter years of their life. Drafting up a long-term care plan now will give you control over how you spend the rest of your life. Chances are, if you wait until you need long-term care, you may not be in good enough health to make the decisions that need to be made. Even worse, if you wait, the size of your savings will most likely determine the type and quality of care you receive. Of course, even in preparing ahead of time, your preferences will need to be flexible based on your health and finances, but you are giving yourself the advantage of planning for your ideal.

Financing Your Long-Term Care Plan

Once you have an idea of what you want your long-term care to look like, it’s time to research ways to pay for it. 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. If you never need long-term care, then you receive no benefits. Similar to health insurance, 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 Louisiana will cost an average of $5,542 a month, and assisted living or hiring a home health aide both come in at over $3,000 a month as well. That puts you at a minimum average of over $36,000 per year, up to $66,500. (9)

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 in order to receive benefits from the insurance company. For example, 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 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, which most people do, 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.

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.

Start Planning Now!

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. At Harbor Wealth Management, we strive to create effective solutions to your retirement challenges, optimizing every piece of your financial plan and giving you confidence in your financial future and the quality of your golden years. If you have questions about your long-term care options and want to make sure you have the coverage you need, send me an email at jeremys@myharborwm.com or call my office at 985-605-7185 today!

About Jeremy Smith

With nearly two decades of experience in the financial services industry, Jeremy Smith serves as a dedicated and knowledgeable financial advisor and the founder of Harbor Wealth Management. He specializes in serving retirees, pre-retirees, small business owners, and widows, providing a comprehensive array of investment management and financial planning services. Jeremy aims to serve his clients as a financial guide who is here for their every need, helping families find lasting plans so they can focus on what matters most to them. To learn more about Jeremy, visit www.myharborwm.com or connect with him on LinkedIn. You can reach Jeremy directly at jeremys@myharborwm.com or by calling his office at 985-605-7185.

Securities and advisory services offered through LPL Financial, a registered investment advisor.  Member FINRA/SIPC.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. You should discuss your specific situation with the appropriate professional.  Long-term care insurance policies contain exclusions, limitations, reductions of benefits, and terms for keeping them in force. Annuities are suitable for long-term investing, such as retirement investing. Guarantees are based on the claims paying ability of the issuing company. Riders are additional guarantee options that are available to an annuity or life insurance contract holder. While some riders are part of an existing contract, many others may carry additional fees, charges and restrictions, and the policy holder should review their contract carefully before purchasing. All policy guarantees are based upon the claims paying ability of the issuer.

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

(2) https://longtermcare.acl.gov/the-basics/

(3) https://longtermcare.acl.gov/costs-how-to-pay/costs-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://www.caregiver.org/selected-long-term-care-statistics

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

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