By David Domian
No one likes to think about the day when they’ll no longer be able to take care of themselves, especially during the celebrations and festivities of the holiday season. However, the hard truth is that 63% of today’s 65-year-olds will require long-term care at some point. (1) When you’re healthy and thriving, it’s easy to focus solely on building your savings to provide for your basic retirement expenses. But 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 means considering the potential need for long-term care as you age. No matter what your health is like today, it’s important to have a plan to pay for long-term care costs.
Don’t let the busyness of the holidays (or of life in general) keep you from evaluating your long-term care plan. Do you know what your options are? What strategy is the best fit for you?
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. On average nationally, it costs $253 per day or $7,698 per month for a private room in a nursing home. (2) 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 $338,712 in expenses. (3) For men, who need long-term care for an average of 2.2 years (or around 26 months), that equals $200,148 in expenses.
For assisted living, the average monthly cost is $3,628, but it can range upwards of $5,000 per month. (4) And by 2026, the average cost is expected to increase to $4,876 per month. These costs can vary based on the level of care and amenities needed, as well as the size of the room and the location.
Whether you’re worried about potential health concerns or want to protect your hard-earned wealth, it’s important to understand the long-term care insurance options available to you and whether or not a policy makes sense for your lifestyle and needs.
Your Long-Term Care Plan
Long-term care coverage isn’t cheap either, 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. It’s a “use it or lose it” policy.
Just like any insurance policy, you will have some coverage choices to make:
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 Missouri will cost an average of $5,688 a month, and hiring a home health aide could set you back over $50,000 for the year.
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.
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.
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, 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 the product you choose, you need to start planning for this critical aspect of retirement. This process can quickly become overwhelming and potentially result in missed elements, so it’s best to seek out guidance from a professional. Our team at Sirius Wealth Management is here to answer questions, explain your options, and review your current policies to make sure you have the long-term care coverage you need. You don’t have to make these difficult decisions alone! Reach out to us today by calling 636-449-4890 or emailing email@example.com to schedule an appointment.
David Domian has been working in the financial services industry since 1980 and specializes in financial planning with a focus on retirement planning. His planning concentrates on four specific goals: the accumulation of wealth, the reduction of taxes and volatility in retirement, the necessary strategies to deal with the risks of longevity, and the passing of an estate in a private, tax-efficient, and protected manner. David holds designations as a CFP® CERTIFIED FINANCIAL PLANNER™, ChFC® Chartered Financial Consultant, CLU® Chartered Life Underwriter, and AEP® Accredited Estate Planner®.
David has been married to his wife, Sue, for over 41 years, and together they have four children and eight grandchildren. Dave is a big believer in family and still has family dinners almost every Sunday with most of his kids, grandchildren, and even his 97-year-old mother. Dave and Sue have lived in St. Louis all their lives. He enjoys spending time outdoors, especially fishing with his grandchildren; he knows they will only be young for so long and you have to live in the moment. This year will be Dave’s 18th annual cross-country motorcycle trip with three college friends; together they have traveled through over 40 states on these memorable road trips.
Dave and Sue support many charitable organizations, including the MS-Society, Cystic Fibrosis, the Lupus Foundation, St. Louis Men’s Group Against Cancer, and the Mary Culver Home for vision-impaired women, where his mother lives. Their support comes in an unusual way: Dave and Sue donate a BBQ (including a pig roast, cooked, carved, and served on site), which is auctioned off at one of their live events. This popular auction item is a great way for Dave and Sue to have fun and do some good in the community. Dave also serves as a board member on the Estate Planning Council of St. Louis.