Understanding Long-Term Care Costs & Solutions
Considering long-term health care isn't a topic anyone relishes, yet it's a sobering reality in the United States. For instance, an individual hitting 65 today faces a daunting 70% probability of requiring some form of long-term care assistance for everyday activities like eating or bathing. The COVID-19 pandemic underscored the taxing nature of caregiving, both financially and emotionally, on families.
Are you ready? The Department of Health and Human Services reported that people typically use long-term care services for around 3 years.
Long-term care costs pose a significant threat to your retirement plans, necessitating proactive planning. Long-term care affects your finances, health, and emotions, as well as those who care for you. It's important to plan ahead to reduce stress on yourself, your family, and your friends. This is especially true since 57% of family caregivers have young children.
Your Options
Navigating the landscape of elder care presents a spectrum of choices. In the past, families took care of their elders. Now, many seniors rely on home health aides or nursing homes for help. Initial support might entail home visits, evolving into more comprehensive care as needs intensify, inevitably escalating in cost.
As you journey through aging, a pivotal crossroad emerges: Should you dip into your retirement savings to independently cover long-term care expenses, or should you contemplate the preemptive investment in long-term care insurance?
This quandary revolves around the gamble of mitigating future uncertainties versus the security of financial preparation. The decision depends on predicting how your financial situation may change as you age. It also considers how these changes could impact your family.
While the financial burden of long-term care is undeniable, crafting a proactive care strategy can significantly influence your and your family's well-being in the twilight years. Hybrid solutions offered by insurance and financial sectors broaden the spectrum of possibilities, providing avenues for tailored solutions.
Outlined here are four strategies for financing long-term care, each with its merits and drawbacks. The crux lies in discerning which aligns best with your unique needs and circumstances.
Cost of Care
Deciding if you need long-term care insurance and how much coverage to get depends on knowing the possible costs. Using tools like the Genworth Cost of Care Survey 2021 can help you estimate long-term care costs in your state.
Ways to Cover Long-Term Care Expenses
For long-term care financing, you can use government aid, long-term care insurance, hybrid insurance, or personal savings. The path you choose depends on your current and future circumstances, as well as your expectations for the care you want.
Government Assistance: For individuals with limited income or veterans, government programs like Medicaid or the Veterans Health Administration may offer support. However, Medicare generally doesn't cover long-term care expenses.
Traditional Long-Term Care Insurance: These policies allow you to customize coverage duration, benefit amounts, and waiting periods. Yet, fewer insurers offer these policies now, and premiums may increase over time.
Hybrid Policies: Combining life insurance with long-term care coverage, these policies provide flexibility and benefits for both scenarios. Another type involves long-term care annuities, though their availability may be limited due to market challenges.
Personal Savings: Utilizing personal funds grants flexibility but requires careful consideration of your retirement plan's resilience to potential long-term care expenses and tax implications, especially when tapping into retirement accounts.
Every choice has good and bad points, so it's important to consider how they fit with your specific circumstances and goals.
Navigating Your Choices
Once you've determined that long-term care insurance is a consideration, it's essential to deliberate on the timing of purchase, the desired coverage extent, and the relevant features aligning with your circumstances. But how does one truly discern if long-term care insurance suits their needs?
When to Buy
As you get older, you are more likely to need long-term care for medical issues. Health problems could also make it harder to get insurance. Typically, individuals opt for long-term care insurance in their 50s, often when reassessing retirement plans alongside financial advisors.
Aside from health risks escalating with age, the financial implications of postponing policy acquisition should be factored in. Delaying purchase can result in higher costs for the same coverage amount with each passing year.
Commencement of Benefits
Long-term care benefits start when someone can't do two daily tasks alone, like eating, bathing, or dressing. Following this, most policies entail a waiting period, also termed "elimination" or "deductible" period. During this time, the person is responsible for paying for their own care. Once the waiting period ends, they can begin receiving long-term care benefits.
Determining Coverage
Long-term care policies typically encompass various expenses, including nursing home stays and home health aides. Your job is to figure out how much coverage you want, including how much money and for how long. Purchasing long-term care insurance resembles acquiring a pool of funds for daily or monthly coverage, such as $200 per day or $6,000 per month.
It's crucial not to overextend your coverage beyond your financial means. Instead, weigh your financial status against your long-term care requirements, potentially adjusting coverage amounts accordingly.
Additionally, be aware of the diverse payment options available for policies. While some require a single lump-sum payment, others permit periodic premium payments. Make sure your policy guarantees fixed premiums, as some policies may raise premiums after purchase.
Maintaining Your Coverage
When investing in long-term care insurance, ensure your benefits are not only adequate but also dependable. Given the persistent rise in long-term care costs, incorporating inflation protection may be prudent.
Additionally, opt for an insurance provider with a reputable track record and robust financial standing. Choose a company with a long history to ensure they can provide benefits when you need them. This means selecting a company that has been in operation for a significant period of time. This way, you can be confident that they have the experience and stability to support you in times of need.
Tailor To Your Needs
Your long-term care insurance should align with your unique circumstances. One person may require different amounts of insurance compared to a couple. This is because they only need to consider their own long-term care needs. Couples should consider how one partner's long-term care needs could affect the other's financial stability.
Moreover, consider your family's medical history to gauge potential risks. Hereditary conditions like Alzheimer's or diabetes can heighten the likelihood of future long-term care needs.
Bottom Line
Creating a good plan for long-term care means finding a balance between cost, quality of care, and potential risks. Beyond financial aspects, leveraging insurance can alleviate emotional and physical strains for caregivers, including family members and friends. A well-considered decision in this regard can avert financial crises and offer reassurance for your retirement years.
Sources:
https://www.fidelity.com/viewpoints/personal-finance/long-term-care-costs-options
https://www.genworth.com/aging-and-you/finances/cost-of-care.html
Disclosures:
This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.
This site may contain links to articles or other information that may be on a third-party website. Advisory Services Network, LLC is not responsible for and does not control, adopt, or endorse any content contained on any third-party website.
This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.
These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.