A recent article from the CNBC website shone a spotlight on one of the great dilemmas facing most retirees: paying for the costs of long-term care. As the CNBC article, written by reporter Sarah O’Brien, points out, part of what makes this such a troubling issue for today’s seniors is that no one can say for certain who will have to pay for long-term care, or how much, or for how long. Still, as we always remind our blog readers and radio listeners here at AgingOptions, planning ahead is the key. As you read this report, just remember that you don’t have to be a victim of ill health, bad planning, or economic setback, because with a well-crafted plan you and your loved ones should be able to navigate through the storms of aging with your dignity and your resources intact.
The Burden of Paying for Long-Term Care Will Affect Majority of Retirees
“There’s an expense lurking down the road for many retirees that is largely unpredictable but likely: long-term care,” says the CNBC article. “Someone turning 65 today faces a nearly 70 percent chance of needing LTC services during their remaining years,” federal government figures suggest. But as premiums on long-term care insurance policies continuing to rise, financial advisors are looking at other strategies to help their clients prepare for a day when they can no longer live independently. As one planner told CNBC, “We’re a country that excels at prolonging and extending life. The result is that the costs of care later in life, and the duration of the care, are lasting longer and longer.”
On average, once they start needing long-term care, women tend to need these services longer than men – 3.7 years for mom compared with just over 2 years for dad. But no matter how long the bills keep coming, the monthly costs can be “eye-popping,” according to CNBC. The nationwide median cost for care at an assisted-living facility is $4,000 per month, compared with $4,200 for a home health aide. If a senior needs care in a skilled nursing facility, the median cost for a shared room nationwide is $7,400 per month, or nearly $90,000 per year. Here in the Pacific Northwest, the home of AgingOptions, those costs are usually much higher, depending on the quality of the facility. That’s why one planner, in a remarkable example of understatement, told CNBC’s O’Brien, “Without planning, long-term-care costs can be a big financial hit.”
The Burden of Paying for Long-Term Care Hits at Varying Stages of Life
According to statistics from the American Association for Long-Term Care Insurance, fewer than 5 percent of LTC claims are initiated at age 70 or younger. About one-quarter of all claims begin when a senior is in his or her 70s, and by the time we enter our 80s the likelihood really climbs. Another one-quarter of all claims for long-term care start when a policy-holder is between 81 and 85, and an even higher number when the individual is 86 or older – the age when about 45 percent of LTC claims are initiated. To financial advisers, that means their clients face an uncertain and unpredictable timeline for long-term care. Advisers are faced with the challenge of gauging “the probability of a particular client needing care eventually — genetics and lifestyle can factor in — and evaluating available resources to recommend an option,” says CNBC.
For most retirees, the choice comes down to two broad-brush alternatives: either they purchase some form of insurance, or else they self-insure, planning to rely on their own assets to fund long-term care costs. “Other options,” says CNBC, “include leaning on family members or spending down (or shielding) assets to qualify for Medicaid-sponsored nursing-home.” Advisers quoted in the article suggest that people in their 60s today who have roughly $3 million to $5 million in liquid assets are the best candidates to self-insure since income from those assets should cover LTC costs when and if required. As for buying coverage, the solution that CNBC calls “the most straightforward” – a traditional long-term care insurance policy – is too pricey for many middle-income retirees, “contributing to a 60 percent drop in sales since 2012.” As the article adds, “With claims exceeding expectations, many [LTC] insurers also have fled the space” and stopped selling policies altogether.
A Hybrid Life Insurance and LTC Policy May Be Right for You
Another option some advisors recommend is a relatively new hybrid policy that combines life insurance with LTC coverage. “While the particulars of each policy vary,” says the CNBC report, “the idea is that you can tap the death benefit during your lifetime if you need it to pay for long-term care,” although “doing so reduces the amount that your heirs would inherit.” The chief drawback, however, is up-front cost. “You typically need a pot of money to fund it. Some insurers ask for an upfront lump sum, while others allow you to spread the premium payments over a set number of years.” Even though some advisers quoted by CNBC expressed skepticism about the sustainability of the so-called hybrid model, these policies do seem to be gaining in popularity with consumers, with sales up 5 percent in 2018 compared with 2017.
We lack the space to delve more deeply into some of the other LTC options your adviser might suggest, but this is definitely a conversation you and your financial planner should have sooner rather than later. The CNBC article concludes, “As for when people should get serious about exploring the best way to fund those potential later-in-life costs, the half-century mark is a good one.” One adviser told CNBC’s O’Brien, “I usually recommend people starting looking at it in their 50s. It absolutely should be part of someone’s retirement planning. Whether you should purchase insurance is another conversation, but you at least should have a plan.”
For Today and Tomorrow, Planning is the Key
While it’s true that your need for long-term care may be somewhat unpredictable, there are some things about your retirement years that we at AgingOptions consider a virtual certainty, based on our interactions with thousands of clients. For instance, it will be extremely important that you find ways to protect your assets as you age. We also predict that you will want the kind of plan in place that prevents you from becoming a burden to those you love. And we know from experience that no one wants to be forced against their will into unplanned institutional care. Decisions about long-term care and a whole host of other issues need to be made holistically, with your broader goals in mind, which is why we urge you to accept Rajiv Nagaich’s invitation to join him at a free event that will open your eyes to a fresh approach to retirement planning. It’s called a LifePlanning Seminar.
Rajiv pioneered what we call LifePlanning. It’s a retirement plan in which the puzzle pieces all fit together: health care, financial plans, legal protection, housing choices, and family dynamics. A LifePlan is your key to true retirement peace of mind. Why not invest just a few hours and see for yourself? There’s a series of free LifePlanning Seminars coming up soon and there’s bound to be one in a location convenient for you. For a complete calendar of seminar dates and times, visit our Live Events page and register for the seminar of your choice. It will be our pleasure to greet you – and meanwhile, “Age on!”
(originally reported at www.cnbc.com)