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Should a Long-Term Care Policy Be Part of Your Retirement Strategy?

You’ve probably seen the bumper sticker: “Be nice to your kids; they’ll choose your nursing home someday.” However, the humor of this statement tends to be lost on those who have faced the difficult decisions around placing aging parents or other relatives in a long-term care facility.

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You’ve probably seen the bumper sticker: “Be nice to your kids; they’ll choose your nursing home someday.” However, the humor of this statement tends to be lost on those who have faced the difficult decisions around placing aging parents or other relatives in a long-term care facility. The emotional and financial costs required to provide for the daily needs of those we love who are no longer able to care for themselves can be staggering.

It’s a significant problem. These days, the median cost of a private room in a nursing home exceeds $9,500 a month, according to  And even if you opt for a home health aide to come into the home to provide assistance, you’re still looking at a median annual cost of over $50,000. By accessing a comparison of average costs for long-term care assistance in various states, you’ll find that these costs vary widely between geographic regions.

And by the way, those who need to be thinking about this matter aren’t just elderly parents or those who care for them; mid- to late-career individuals—typically in their peak earning years—are wise to look ahead toward their retirement and consider the cost of their own long-term care (LTC) as part of their financial planning and investment strategies. In the year 2000, 37 percent of those who needed LTC in the US were younger than 65, according to the US Department of Health and Human Services (HHS). More recent research indicates that about 70% of those currently 65 or older will require LTC at some point in their lives. And because women typically live longer than men by about five years, they are even more likely to require LTC at some point.

Defining “Long-Term Care”

The term encompasses a range of services and types of support that may be required to meet an individual’s personal care needs. Actually, most LTC is not medical in nature. Instead, it involves help with activities of daily living (ADLs) such as bathing, dressing, toileting, transferring from bed to chair and vice versa, preparing meals, and eating. Because these are not strictly medical matters, LTC is not usually covered by Medicare. Surveys consistently show that this fact comes as a surprise to many, but unless you require skilled nursing care in a nursing home or in your own home, Medicare won’t help. Further, even for such covered expenses, Medicare coverage is limited to a maximum of 100 days (the average length of time covered by Medicare is actually about 22 days).

This means that most LTC services are provided by an unpaid caregiver—usually a friend or family member—a nursing home, a home care aide, an adult daycare service provider, or some combination of the above. Paid services, as mentioned above, aren’t cheap; a semi-private room in a nursing home averages just over $6,800 per month, with more expensive states (like New York and Massachusetts) averaging about $13,000 per month, and less costly states (like Texas and Missouri) running closer to $5,000 per month.

When people are no longer able to perform two or more of the ADLs without assistance, they become candidates for LTC. It’s also important to remember that many circumstances other than advanced age can bring about a need for LTC, including chronic health conditions such as diabetes or high blood pressure, stroke, severe heart disease, and other illnesses and disabilities that can strike people in their 60s, 50s, or even 40s. HHS estimates that about 8 percent of those between ages 40 and 50 have a disability that could require LTC-type services; 69 percent of those 90 and older have such a disability.

For those with scarce financial resources, Medicaid typically becomes the source of last resort for LTC funding. Medicaid covers most non-medical LTC costs, but to qualify, your income and assets must be below a certain level, which is set by each state (see An entire legal specialty has sprung up around various strategies for helping older Americans qualify for Medicaid: gifting assets, placing them in certain types of trusts, etc. In laymen’s terms, older people must basically put themselves below the poverty line in order to qualify. Also, because of Medicaid rules, once those assets are gifted away or otherwise divested, they become difficult if not impossible for the grantor to repossess and still retain eligibility for Medicaid benefits. It is a serious dilemma.

LTC Insurance

Enter long-term care insurance. These plans, usually issued by private insurers, offer many different options—each of which comes with a cost—that can cover most or all of the expense of LTC services. Premiums are based on your age when the policy is issued (the younger you are, the lower the premiums) and which options you select for coverage. Most policies reimburse policyholders a daily amount, up to a pre-selected limit, for expenses related to assistance with ADLs, and most policies will cover expenses for nursing home care, private home care, and adult day care.

For persons with plentiful assets—generally, $1 million or more—pre-funding an LTC plan is usually the wisest and most cost-effective choice. They should consult with their financial advisors in order to establish the best tradeoff between managing the risk of LTC costs and keeping the maximum level of assets actively invested. Younger persons who are still working and approaching retirement can profitably utilize various strategies involving policies with cash value and death benefits to even further lower the opportunity cost of funding their eventual LTC needs. It’s important to keep in mind that the average length of time an individual in the US will need LTC services is about three years. This means that LTC planning should take into account inflation, the average cost and duration of a nursing home stay in your state, and your present age.

As an example, let’s look at a person who is 55 and lives in Florida. The current average annual cost of a nursing home stay in Florida is about $104,000. Since the average duration of a nursing home stay in the US is about 3 years, someone needing LTC services today would require about $312,000. If we allow for the current average rate of inflation in LTC costs (around 3 percent, according to the most recent study by Genworth Financial), $312,000 would need to grow to about $653,000 by the time the individual reaches age 80. Annual premiums for an LTC policy to cover this need range between $1,524 and $2,952 for a male policyholder aged 55 who is in good health. So, at the low end, our policyholder would spend a total of $38,100, over the next 25 years, to insure a $653,000 need. At the high end, they would spend $73,800. The insurance isn’t cheap, but it can buy you and your loved ones a lot of peace of mind, compared with the amount of cash that would be required to cover the same need.

If paying that kind of premium now would disrupt your retirement savings strategy, you may wish to discuss Medicaid planning with your financial and legal advisors. But the most important thing is that even if you are still in your peak earning years, it may be time to begin making a plan for your LTC needs. As a wise person once said, “We’ll all get old if we live long enough.” It makes sense to plan now and avoid unpleasant surprises later.

At Milestone Money, our goal is to help our clients plan for a successful retirement. By anticipating as many of the costs as possible, we can build strategies that can provide greater peace of mind. To learn more, visit our website to read our article, “Understanding Your Medicare Choices.”




What issues should i consider before i retire?

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