By Boyce F. Lowery, CLU®, ChFC®
There are a lot of things you don’t want to gamble with in life; your retirement savings, your kids, and your long-term health are just a few. Unfortunately, long-term health takes a back seat for many Americans, with few people incorporating the possibility of long-term care (LTC) into their overall financial plans. Since nearly 70% of today’s 65-year-olds are going to need some form of LTC, (1) it’s crucial to have a plan to pay for these costs.
When you are healthy and thriving, it’s easy to focus solely on building your savings and forget about the potential need for LTC as you age. But no matter what your health looks like today, creating a LTC plan now will allow you to thoroughly research your options and build a plan that works for you and your family, saving time, money, and stress in the future.
At Suncrest Advisors, we want our clients to be prepared for retirement, no matter where the journey leads. That’s why we strive to provide our clients with the latest information about LTC costs and strategies. Read this guide to learn more about your options so you can retire with the confidence you deserve.
How Much Does Long-Term Care Cost?
The unfortunate reality is that LTC costs are so high that they could potentially wipe out a bulk of your retirement funds. In 2022, the national LTC average cost is $306 per day or $9,305 per month for a private room in a nursing home! (2) To make matters worse, women often pay significantly more than men for LTC because of their longer life expectancy. Women usually require LTC for 3.7 years (or around 44 months), versus 2.2 years (or around 26 months) for men. (3) When the costs are added up, women will spend around $409,420 and men will spend $241,930 on LTC alone.
And this amount is only projected to increase. By 2032, the daily cost for a private room in a nursing home is expected to jump to $411, or $12,505 per month, and assisted living will reach $6,229 per month, compared to $4,635 today. (4) These costs can vary dramatically based on the level of care and amenities required, as well as the size of the room, and your geographic location. The first step in planning for LTC is to decide what type of care you would prefer.
What’s Your Ideal Long-Term Care Situation?
If you have a family history or early signs of Alzheimer’s or dementia, or if you suffer from a chronic disease that will require ongoing care or daily assistance, consider facilities that offer the specific care you’ll need. Be sure to share your thoughts with your family, so that everyone is aware of your wishes. Would you prefer to live in a nursing home, or would you like nurses and assistants to come to your residence? Or do you want a religious community of care? There are several preferences to consider when building your LTC plan.
Having the option to make these choices yourself lends much-needed autonomy to your LTC plan. If you wait until you need it, you may not be mentally or physically capable of making the decision yourself, or the size of your savings might determine the care you receive.
Whether you’re worried about potential health concerns or want to protect your hard-earned wealth, it’s important to understand the LTC insurance options available to you and whether or not a policy makes sense for your lifestyle and needs. Planning ahead can also help to alleviate any burden on your kids if your health declines more rapidly than expected.
Your Long-Term Care Plan
LTC coverage isn’t cheap, but it pales in comparison to LTC costs. Here are some options to consider when creating your LTC strategy.
1. Traditional Long-Term Care Insurance
With traditional long-term care insurance, you pay a premium in exchange for LTC coverage if/when it is needed. If you need LTC at some point, the policy provides you with money to pay for it. If, on the other hand, you never need LTC, you will receive no benefits. Much like a term life insurance contract, it is typically a “use it or lose it” policy.
As with other insurance policies, 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. Most policies also include home-care coverage as that type of care is usually less expensive for the insurance company. 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 Utah costs an average of $9,399 per month, while that same room costs $10,307 per month in Nevada. (5)
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. 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, but you won’t get the tax benefits that come from a qualified plan.
Inflation and Premiums
If you want, you can have your benefits increase with inflation to match future care costs by adding an inflation rider. Keep in mind that premiums for any LTC policy are not set in stone and can rise over time based on increases in LTC prices, presuming the insurance company is successful in getting the state to approve the rate increase.
2. Life Insurance With a Long-Term Care Rider
The use-it-or-lose-it nature of a traditional LTC policy can sometimes feel like a waste if you don’t end up needing LTC benefits. Because of this, several hybrid products have emerged. One very popular solution is a life insurance policy with a LTC rider. This strategy is enticing because if LTC 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 (tax-free), and thus no money is wasted.
If you need life insurance, adding LTC coverage as a rider may be a good option for you. This way, someone will benefit from the premiums you pay, whether it is in the form of LTC benefits or death benefits. Depending on the type of life policy purchased, it may also accumulate a cash value, meaning the insured individual can access it if needed, allowing them to recoup a portion or all of their premiums paid if the coverage is no longer desired.
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 fixed annuity, you may have the option of adding a LTC rider onto the contract. Since 2010, the IRS allows for the LTC portion to be used tax-free. (6)
After purchasing the annuity, you would select the amount of LTC 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 LTC. Otherwise, you can cash out the annuity when it matures (at which point you would lose your LTC coverage) or let it accumulate and ultimately pass on as an asset to your heirs.
Obtaining LTC 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 cash payment.
4. Partially or Fully Self-Insure
Another option to consider is partially or fully self-insuring. With this strategy, you would simply create a savings or investment plan specifically for future healthcare needs. This can be done with any number of strategies. By contributing a specific amount every month, you can build a contingency fund for whatever healthcare expenses come your way. If you end up not needing LTC, the money is still yours and can be used for your living costs, unexpected expenses, or an inheritance for your heirs.
This can be an effective option for clients who are in good health with no major concerns in their family medical history and expect to need little to no serious LTC in the future, but still want to be protected in the event of unexpected healthcare needs. Just bear in mind that a need for long-term care can be totally unexpected and occur at any time, regardless of age, so planning to self-insure can put you at risk of not having the funds at the time they are needed.
Start Planning Today
Regardless of where you are in life and the financial obstacles you face, it’s important to start planning for the LTC aspect of retirement. We know that thinking about the need for LTC can be stressful and confusing. That’s why our team at Suncrest Advisors is here to help you navigate LTC using our comprehensive financial planning services. If you have questions about your LTC options and want to make sure you have the coverage you need, call us at 888-827-0146 to get started today.
About Boyce
Boyce Lowery is a 40-year veteran and established expert in the insurance industry. As the managing partner of Suncrest Advisors, he, his partner, and their associates all aim to provide financial security and peace of mind to business owners, executives and professionals, and high net-worth individuals across the United States. Along with more than four decades of experience, Boyce is a Chartered Life Underwriter® (the premier designation for insurance professionals signifying specialized knowledge in life insurance and estate planning) and a Chartered Financial Consultant® (known as the advanced financial planning designation). To learn more, visit https://suncrestadvisors.com/ or connect with Boyce on LinkedIn.
_______________
(1) https://www.jrcinsurancegroup.com/long-term-care-statistics/
(2) https://www.genworth.com/aging-and-you/finances/cost-of-care.html
(3) https://longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html
(4) https://www.genworth.com/aging-and-you/finances/cost-of-care.html
(5) https://www.genworth.com/aging-and-you/finances/cost-of-care.html
(6) https://longtermcareinsurancepartner.com/blog/using-annuities-to-pay-for-long-term-care