Understanding Your Long-Term Care Options
Posted December 4, 2020
Posted December 4, 2020
When we consider long-term care, we are talking about more than an insurance policy. From fulfilling basic personal care needs to completing everyday tasks, long-term care encompasses the services and supports that fill the gaps when individuals need help over an extended period of time due to injury, disability, or advanced age.1 Even if you are healthy and active, financial consideration for the possibility of long-term care could make a big difference for you and your family.
According to research by the U.S. Department of Health & Human Services, we as Americans underestimate our future needs—over half of retirees (an estimated 52%) turning 65 now will require some long-term care.2 Other reports like a recent Genworth survey estimate that number as high as 70%, or 2 in 3 people.3 Though some retirees appreciate the informal assistance of loved ones through advanced age, relying on the family is not a practical solution in many situations. Even in combination with family help, the cost of formal services and support adds up quickly and can pose a steep financial challenge later on for your loved ones. As a newly eligible retiree, the average cost you may face is $138,000. Without a financial plan in place for your long-term care, about half the cost of your care would be likely paid out-of-pocket by your family. Because no retiree wants to place a heavy monetary burden on the family, making considerations for long-term care is a key element of your comprehensive financial plan.
First, know your options to determine your optimal living situation if you should require long-term care.4 If family members are able and willing to help, it is important to discuss the type and frequency of support they could realistically give. Conversely, the range of formal services and support is wide, from institutions like nursing homes and intermediate care facilities to home and community-based services, including assisted living facilities. If the options seem daunting, there is good news—a combination of formal and informal support, alongside home adjustments, can often meet retirees’ needs.
Experts believe women will need 3.7 years of care, men almost half of that at 2.2 years.5 Looking closely at professional caregiving, services, and support are categorized as either ADLs, activities of daily living for your personal well-being, or IADLs, instrumental activities of daily living for keeping your home and finances. To determine long-term care costs you might accrue, you will need to add all potential providers for ADL and IADL services costs where you will retire since cost varies based on location.
Your comprehensive financial plan will need to address this sum either by self-insuring or taking out a long-term care insurance policy. Self-insuring means you must set money aside from your income sources (including Social Security, pensions, and annuities) for the hypothetical cost and be prepared to spend it if the time comes. Long-term care insurance policies can only be used on long-term services and support, a notable exception being hybrid plans that combine life insurance. Other plan types afford benefits that reduce out-of-pocket costs with coinsurance and deductibles. Since insurance policies can be expensive, buying an insurance policy outright is often advisable when purchasing well in advance because you pay less the younger you are.
A long-term care insurance policy can provide additional benefits, like inflation protection and a better tax rate. However, be aware that insurers can raise the premium in the future or even dispute claims, putting you in a difficult situation if you rely on the policy. Insurance offers peace of mind—if you choose to take out a policy; for this reason, be sure the positives outweigh the risks in your specific situation.
If you have a comfortable amount of assets to self-insure for long-term care, you may choose to avoid a traditional insurance policy in favor of other financial strategies. Trusts offer you flexible control of assets by contributing to a charity while reducing your taxes. Fixed deferred annuities, also known as “longevity insurance,” use a large investment to pay you a yearly income throughout your life, which places a bet on your health. If you have paid for your house, home equity could also help cover your expenses without the gamble. If you do choose to include an insurance policy in your long-term care plan, a “partnership-eligible” policy can offer reasonable security by protecting your assets if you were to exhaust your resources.6 A combination of strategies allows you more flexibility to choose your optimal living situation for whatever your future holds.
As an integral part of any comprehensive retirement plan, Thayer Financial can help you weigh these strategies for long-term care to best suit your retirement goals. As financial advisors in Hickory, Thayer is your dedicated resource for fee-only, fiduciary advice. Please schedule an appointment or call us today.
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