When we think about retirement, we tend to accentuate the positives: growing old in our own home, visiting the grandkids — finally traveling the world.
And while that could very well be what lies ahead, there’s also a less-pleasant reality that should be considered: the idea that unexpected health issues or long-term illnesses could waylay your plans — and your finances.
After all, close to 70% of those who reach the age of 65 will require long-term care at some point in their lives, according to the Department of Health and Human Services. And women, in particular, are vulnerable, thanks to longer life spans.
Fact: Women outlive men by about five years, on average, and require long-term care for an average of 3.7 years, compared to 2.2 years for men.
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Charlotte Luer, 50, knows this situation all too well. “My parents took care of my grandmother for years, and it took a toll on them,” says the Naples, Fla., resident.
So when the divorced mother of four started planning for her own future health-care costs, she decided to purchase long-term care insurance so she wouldn’t be a burden to her kids, who range in age from 19 to 26.
“My mom died young of colon cancer, and my dad purchased a long-term care policy for himself," Luer says. "He’s now 80, and has three shifts of nurses helping him—all of which are paid for.”
Generally speaking, long-term care is the term used to describe the need for ongoing assistance with basic living activities—like getting dressed, eating or bathing—that typically results from having a prolonged illness or disability. It may encompass such things as needing a little help with household chores or around-the-clock nursing care. And it’s one of the big question marks of retirement: Will you need it?
For many people, the answer is yes. And considering what's at stake, long-term care isn't something to keep on the back burner.
“You have to think about the big picture,” says Carolyn McClanahan, CFP®, with Life Planning Partners in Jacksonville, Fla. “Some people say, ‘I would never go into a nursing home; I want to stay in my home forever.’ But when you get very old, that gets difficult [to ensure].”
If your future health care costs keep you up at night, perhaps it's time to put your nose to the planning grindstone. To help get you started, we've compiled five things to keep in mind as you build out your long-term care strategy.
1. Long-Term Care Can Hit the Six-Figure Mark
Truth be told, long-term care could actually be one of your biggest costs in retirement. According to a 2014 Genworth study, the national median rate for a private room in a nursing home is $240 a day, while an assisted-living community comes in around $3,500 a month. Meanwhile, adult day services run about $65 per day, while home health aides earn about $20 an hour.
And contrary to what many people believe, Medicare doesn’t necessarily pay for such pricey long-term care costs.
“Medicare is restricted to specific illnesses and injuries for a short period of time,” says Laura Knolle, CFP®, with Ballou Plum Wealth Advisors in Lafayette, Calif. “So if you have a problem, Medicare pays for the first 100 days in a nursing home—after that you’re on your own.”
This leaves four options: You can rely on family—a common arrangement that often creates a burden for loved ones. You can use Medicaid, but qualifying for it essentially means you’ve spent your assets down to almost nothing. “That’s not pre-planning,” Knolle says. “This means you’re basically destitute.”
Option three is to self-insure, paying your long-term care costs out of pocket. But keep in mind that the typical stay in an assisted-living facility is 25.6 months—and adds up to more than $90,000. And the average stay in a nursing home is 835 days, which means a private room at the median rate would clock in at over $200,000.
Then there’s long-term care insurance, which kicks in when you can’t perform at least two activities of daily living—like bathing, eating or dressing—and can help cover the costs that Medicare won’t.
And women, in particular, tend to need this type of daily care as they get older: Among people age 75 or older, women are 60% more likely than men to need help with day-to-day activities.
While 51.5% of applicants between 50 and 59 qualify for long-term care insurance, only 42.2% between 60 and 69 do—and that number plummets to 24% at age 70.
2. Timing Is Everything
The decision to purchase a policy really depends on your individual situation—and should be weighed within the larger context of your finances.
For some, the premiums may seem steep: Although prices can vary greatly by provider and policy terms, the average, 50-something married couple probably paid between $1,816 and $3,725 for a standard comprehensive policy last year, according to the American Association for Long Term Care Insurance.
But one benefit of getting a policy is that it can help prevent future family stress, which may be why some people opt to purchase a policy even if they think they have enough assets to pay for their long-term-care costs out of pocket.
“People with a lot of money may decide their dollars are better spent with the insurance because it will relieve their children or spouse from having to worry about where the money is coming from,” says Howard Hook, CFP®, with EKS Associates in Princeton, N.J. “It’s not right for everybody, but it is right for everybody to at least consider it and make a decision.”
If you’re considering a policy, timing is important. By age 50—and no later than 64—you should be considering whether you need long-term care insurance. Those with health problems—or the risk of health issues, like hypertension or a previous bout with cancer—may want to start looking into a policy even sooner.
“If you have health problems now, and you’re not able to change your lifestyle or health situation, you don’t want to wait until you become uninsurable,” McClanahan says. In other words, if you wait to apply for long-term care insurance until after you've been diagnosed with an illness like Parkinson's or muscular dystrophy—or you already require assistance with everyday tasks—then you may have missed the boat for coverage.
While 51.5% of applicants between 50 and 59 qualify for long-term care insurance, only 42.2% between 60 and 69 do—and that number plummets to 24% at age 70, according to the American Association of Long Term Care Insurance.
So is it ever too soon to apply for coverage? “Buying a policy before age 45 is probably too young,” says Sev Meneshian, CFP®, with Public Retirement Planners in Evanston, Ill., and an adjunct professor of estate planning at Northwestern University.
The exception: If there’s a family history of cognitive or other serious health issues, like dementia, it may be advisable to buy a policy at 40.
3. Not All Policies Are Created Equal
In general, consider looking for a policy that covers both care in a facility and at home—and that comes with an inflation rider, which ups your coverage amount over the years so you'll have more to finance future costs. “We like to see the benefit increase every year,” Hook says. “If benefits don’t keep pace with inflation, it’s possible that the policy you buy now won’t cover the care you need in 30 years.”
Hook points to a client whose mother had a long-term care policy that only paid $75 per day, since it had no inflation rider. “Those benefits that were bought 25 years ago were practically worthless, because her care ended up costing $250 a day,” he says.
And although you may be able to buy a policy through your employer, make sure you’ve done your homework on all the terms the policy offers.
“When you look at employer-provided plans, a lot of them don’t offer 100% home health care,” Hook says. “Or the inflation rider won’t increase the benefit every year, but every three years—or they may offer you the chance to buy more every three years. Those are glaring differences you should be aware of.”
"People are irritated that they’re paying and paying, and never using the benefits. But you don’t buy fire insurance hoping that your house burns down—you’re protecting against a possible loss.”
That said, if you have health issues, an employer-provided plan can be worth considering, since there’s typically no medical exam involved. And if you’re too young to consider a private policy, an employer policy might help bridge the gap. “That’s [for] someone who wants the coverage just in case, and is willing to slide into a private policy at some point,” Hook explains.
Regardless of the option you choose, it’s worth noting that because Medicare will typically cover much of the first 100 days of medically required care for people over age 65, many experts recommend a long-term care policy with a 90-day elimination period, meaning your benefits won’t kick in until then.
4. You Also Have Other Options
The long-term care insurance market is constantly evolving, and policy offerings have changed to address concerns people may have about paying premiums for a benefit they may not use.
For instance, there are life insurance policies with long-term care insurance riders—if you use the long-term care benefit, the death benefit decreases. “But if you don’t use it, your family gets the death benefit,” McClanahan says, adding that there are also annuities with long-term care insurance riders.
“The industry is moving more in that direction because people are irritated that they’re paying and paying, [and never using the benefits],” Knolle says. “But you don’t buy fire insurance hoping that your house burns down—you’re protecting against a possible loss.”
As with other types of insurance, when you're buying a long-term care policy, it's about getting a level of coverage that can afford you peace of mind—no matter what form that takes. If you're feeling unsure of what makes the most sense for your financial situation, consider working with a financial professional, who can help you wade through all of the options in order to determine whether a combination policy is the proper fit.
5. Make Long-Term Care a Family Money Talk
If you really want to do right by the important people in your life, clue in your loved ones about your long-term care plans and preferences. “People think their spouses or children know what they want, but it’s so important to have some sort of conversation and even a written notification [about your wishes],” Hook says.
In fact, according to a 2014 Genworth survey, women are less likely than men to have had a discussion with family about their needs for aging, with 31% saying the topic leaves them feeling afraid or anxious. By contrast, 40% of men feel peaceful or calm when it comes to discussing later-in-life care.
In addition to simply communicating your wishes, it's also a good idea to have your estate plan in order—something you’ve hopefully done long before thinking about nursing home care. A complete plan should generally include a financial power of attorney, health care power of attorney, health care directive (or living will) and a will.
“People should also make certain they’ve checked all their beneficiary designations, as well as talked to those they’ve named in the documents to help them,” McClanahan says. “You don’t want to spring a surprise on somebody, because they may not be prepared to deal with that.”
And remember to take into account how your plans—for both your estate and long-term care—may affect your loved ones.
“I felt strongly about protecting my son from having to make the same difficult decisions. So while most women celebrate 50 with something significant, like a diamond ring, I wanted a long-term care policy."
Meneshian points to the fact that long-term care insurance can help keep the peace among family members, noting that it’s not uncommon for hostility to develop between siblings if a daughter cares for her mom before her death—but the mother leaves her assets equally to all of her kids. With a good policy, the burden of care might not have rested on the daughter’s shoulders.
There's also another factor to consider: Women tend to outlive male spouses. “So it serves women well to look into a policy,” Meneshian says. “The husband is counting on the wife to take care of him—then there’s nobody left to take care of her.”
That’s not to say that both spouses shouldn’t consider insurance. When you buy long-term care coverage, you’re often decades away from needing it—with no way of knowing how things are going to turn out.
It could be that the wife becomes ill first, and the husband needs more care than his wife can provide. “In this case, a solution would be to buy a long-term care policy with a pool of benefits that both spouses can dip into,” Meneshian says.
You can also look at long-term care insurance as a gift to yourself, which is exactly what 61-year-old Lisa Gleeson did after she and her sisters spent years caring for their mother and father in their later years.
“I felt very strongly about protecting my son from having to make the same difficult decisions about paying for the cost of care when people are in declining health,” says Gleeson, who lives in Troy, Mich. “While most women like to celebrate turning 50 with something significant, like a diamond ring, I wanted a long-term care policy.”
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.