Every year, LTC Awareness Month rolls around just in time to get sideswiped by elections, holidays, and football. Here at PlanSimple, we focus on one of the biggest drivers towards a successful retirement plan, which is managing the cost of care. Most of us have seen it first hand, the nursing home that costs more than a trip to Disney World, but on a monthly basis. Assets dwindling down to zero as family scrambles how to figure out the financial catastrophe. Playing the shell game with trusts, gifting, and spend down in hopes of having Medicaid pick up the tab…
But there’s another way. Proper planning will help ensure you don’t have to reverse mortgage your home. Proper planning will help ease your mind at night. Proper planning will help you stay appropriately invested in the market without pulling out of your accounts prematurely because you can’t stomach the volatility. The biggest key is to start planning early in life. You don’t need or want to be 65 or older before you begin the discussion with your advisor. The sooner you address this void in your plan, the better.
Here’s a quick read and a handful of tips on how to navigate the LTC train:
Encountering an unplanned need for long-term care is a significant risk to many retirement plans – particularly for the surviving spouse. Notably, unlike other risks that can unexpectedly derail an otherwise sound financial plan, such as an early death or a sudden disability, a long-term care event is actually more likely than not to occur, provided a client lives long enough. More specifically, according to the U.S. Department of Health & Human Services, 70% of adults who survive to age 65 develop the need for long-term care services, with 48% receiving paid care during their lifetime.
Long-Term Care Insurance (LTCi) or a Hybrid Insurance Policy can be an effective way to mitigate the risk of increased costs associated with a long-term care event, but the relatively high cost of meaningful LTCi coverage puts it out of reach for some families and is often too difficult a price to stomach for others, even when they can afford such coverage. Accordingly, some individuals choose to self-insure for the possibility of such events using their own assets, while others ‘plan’ to rely upon family members and/or government-funded aid in the event long-term care needs arise.
The role of the advisor begins by helping clients to understand the potential for long-term care needs to arise, and by helping to illustrate the potential lifestyle changes that might be required given the need for various levels of care. It is important to ensure that clients understand that, in general, such costs are not covered by Medicare or other health insurance policies. In that a client deems such lifestyle changes unacceptable (or simply wishes to mitigate the potential impact they may have to their overall assets), potential solutions, such as purchasing long-term care insurance, moving into a Continuing Care Retirement Community (CCRC), or utilizing equity in their home, should be explored.
Where long-term care (or similar) insurance is to be used as a potential solution, the advisor should serve as an objective third-party in reviewing available options, including analyzing the type of long-term care coverage (e.g., traditional long-term care insurance vs. asset based long-term care insurance vs. life insurance with a long-term care rider), the cost of the policy, the ‘triggering event’ for coverage to begin (e.g., inability to complete two or more activities of daily living (ADLs) vs. chronic illness), the maximum monthly benefit, the maximum lifetime benefit, elimination period, the tax treatment of policy premiums, and the tax treatment of policy benefits. Advisors should exercise similar levels of due diligence in the event that other financial products, such as reverse mortgages, are explored as viable planning alternatives.
Best Practices
- Engage in discussions about how you would like to receive long-term care or similar services in the event a need arises. How important is it for you to remain in their home vs. a medical facility? What modifications to your home and/or lifestyle are they willing to make to accomplish those goals?
- In determining the potential impact of a long-term care event for male clients, age 72 should be used as the age of the healthcare event (unless such clients are older, in which case, the plan should illustrate an immediate need). The need for services should be modeled to last for at least three years, and the cost should reflect that of a skilled nursing facilities in the client’s intended retirement destination.
- In determining the potential impact of a long-term care event for female clients, age 75 should be used as the age of the healthcare event (unless such clients are older, in which case, the plan should illustrate an immediate need). The need for services should be modeled to last for four years, and the cost should reflect that of a skilled nursing facilities in the client’s intended retirement destination.
- Ensure all potential group long-term care insurance coverage options (e.g., policies that may be obtained through an employer, fraternal organization, etc.) are considered in the evaluation of any insurance solutionEach person’s situation and spending habits are different, so if you have concerns it may be helpful to review your plan with us. Have questions? Schedule a complimentary 15 minute call to discuss your specific situation: https://calendly.com/jmilliken