Long-Term Care Planning

LTC STATISTICS

            69% of people age 65 and older will need some form of LTC, 20% of those turning 65 will need care longer than five years, and about 35% of people who reach age 65 will enter a nursing home at least once in their lifetime according to longtermcare.gov.

            Genworth Insurance Company does the most widely quoted LTC cost-of-care study, and the following are the most recent depressing numbers:

            In-Home Care

            -Homemaker Services = $5,720 monthly ($68,640 a year)    -Home Health Aid = $6,292 monthly ($75,504 a year)

            Community and Assisted Living

            -Community and Assisted living = $2,058 monthly ($24,696  a year)
-Assisted Living Facility = $5,350 a month ($64,200 a year).

            Nursing Home Facility

            -Semi-private room = $8,669 a month ($104,028 a year)
-Private room = $9,733 a month ($116,796 a year)

            It’s the last set of numbers that worries most people because MOST people do NOT have LTC insurance.

ARE YOU PREPARED FOR LTC COSTS IN RETIREMENT?

            To some readers  don’t think they will need LTC insurance for one of two reasons: 1) they don’t think they will go into a nursing home; 2) if they do go into a nurse home, they think they will be able to pay the expense out of retirement assets/cash flow.

            I’m going to use the example client from the last chapter in an attempt to motivate readers to read this entire chapter. The example I’ll be using is the 65-year-old who, with the perfect circumstances, ran out of assets when he was supposed to die at age 88. Here is his OnPointe Retirement Planner chart.

            What happens if this example client has to go into a nursing home for 3 years at age 80? Let’s say he wants a semi-private room ($104,028 annually).

            Now what do his expenses and his retirement cash flow charts look like? The first chart shows the bump in expense, and the second chart shows his retirement cashflow shortfall. He will now run out of money at age 85 instead of age 88 (three-year cashflow shortfall).

            But wait, today’s current LTC costs are not what they will be in this example. The LTC costs will not occur for 15 years. Using the Genworth cost-of-care calculator, the projected annual costs of a private nursing home room will be $181,968 per year.

            With the higher/more realistic expense numbers, this example client will now run out of money at age 84(another year earlier).

            What if you are married and are lucky enough to both live into your 80s? There is a high likelihood that both spouses will go into a nursing home at some point in time.

            Here are the projected expenses for a semi-private and private nursing home for one person using the Genworth calculator:

            In 10 years:

            -Semi-private  = $139,800 annually
-Private           = $156,960 annually

            In 15 years:

            -Semi-private  = $162,072 annually
-Private           = $181,968 annually

            In 20 years:

            -Semi-private  = $187,884 annually
-Private           = $210,948 annually

            In 25 years:

            -Semi-private  = $222,180 annually
-Private           = $244,548 annually

            I’m sure there will be people reading this book from under the age of 30 to over the age of 70. If you are under 70, these projected numbers are a real financial headache.

            If you have the means, you could self-insure; but the question this chapter tries to help readers answer is,should you?

            If you are NOT going to self-insure, what can you do? Buy some form of LTC insurance.

Do you have LTCI? Based on the statistics, we know for most the answer is NO.

Should you have LTCI? Based on the statistics, we know the answer is YES! If the average cost of a nursing home stay is over $100,000 a year, how many years do you have to stay in that home before spending a good percentage, if not all, of your wealth?

Why don’t people purchase LTCI? There are two reasons people do not buy LTCI. 1) Cost. It can be expensive. 2) Need. Many people have the “it won’t happen to me” attitude when it comes to the need for LTC expenses.

The sad truth is that the people who buy LTCI are people who have had a loved one or a friend who felt the devastating effects of LTC costs and didn’t have LTCI.

What does LTCI cover? It depends on the policy purchased. Some cover only nursing home care while others cover in-home care as well as a number of other expenses. The coverage will have a limit (usually a daily or monthly limit).

What triggers LTCI coverage to kick in? Typically, it’s when you can’t perform “2 of 6 ADLs.” ADL stands for activities of daily living: Bathing, Dressing, Toileting, Transferring, Continence, and Eating without help.

LTCI options

There are several different ways to obtain LTCI coverage. Depending on your situation, one may be better for you than another.

Traditional LTCI—this is the best but also the most expensive type of LTCI. You pay an annual premium of $2,500-$10,000+ a year (depending on your age); and if you incur LTC expenses, the policy will pay up to its daily limit. Traditional LTCI is like term life insurance. If you don’t use it, you do not get the premiums back.

Single Premium Life Insurance policies that have LTC benefits—most people are not aware of the fact that they can purchase a life insurance policy that has an LTC benefit. Why would you purchase this type of policy? Because if you have LTC costs, the policy will pay and if you ever need the money you paid in premiums, it’s accessible. That’s right. If you paid a $200,000 one-time premium for a policy and needed the money in years two, three, or whenever, you could ask the insurance company for a refund of your entire premium.

Additionally, some policies grow money in the policy similar to money market/certificate of deposits. This type of policy is a good fit for an older client who has money sitting in CDs and money market accounts because they think they may need the money someday and, therefore, do not want to allocate it to buying traditional LTCI.

To view/listen to a video presentation on SPL policies, please click on the image below.