You might remember the old song from the group “Chicago”, “Baby What a Big Surprise”. Some of the lyrics to that pop tune were, “Baby what a big surprise, Right before my very eyes, Oh, oh, oh, woah, oh”. Now the song had nothing to do with getting older and the costs and burdens associated with aging. However, you want to avoid the big surprises many families face when they don’t prepare for post-retirement prior to retiring.
There are big surprises around the corner that many people, and even their financial advisors, forget about when planning for a future successful retirement. You might plan for normal health expenses, lifestyle, vacations and legacy concerns. The big surprise many people face is long-term care costs. When no planning exists for the costs and associated family burdens that come from Long-Term Care services and supports, it leads to crisis management. These costs are not cheap, and the burdens impact the whole family!
The fact is most of us will need some type of long-term care service or support during our lifetime. Shockingly, a US Senate report showed many people require Long-Term Care services before age 65. However, if you reach the age of 65, the chance of needing some type of extended care is 70% according to the US Department of Health and Human Services. Over half will be wide-ranging help with activities of daily living or supervision due to memory issues like Alzheimer’s or dementia.
However, few people prepare for these costs in their retirement plan. The Employee Benefit Research Institute says only 13 percent of those who received professional home health care had long-term care insurance policies in place. This meant they were forced to pay for these expenses out-of-pocket. In addition, some families paid a daughter or daughter-in-law to provide care. Caregiving is very hard on family members and often requires them to take time off work and creates financial strain, according to the AARP.
People don’t plan for long-term care costs for many reasons. These include:
- They think health insurance or Medicare and Medicare Supplement will pay for long-term care. The fact is health insurance, including Medicare and supplements will only pay for a limited amount of skilled care. Most long-term care is custodial in nature. This is defined as help with normal living activities or supervision due to a cognitive problem like Alzheimer’s or dementia. Unless a person has Long-Term Care Insurance, these expenses are out-of-pocket.
- They think Medicaid is available for everyone. – Medicaid is a program for those who have very limited assets. In most states this usually means no more than $2000 in savings.
A living spouse is allowed a certain amount which varies from state to state (find your state here: https://www.ltcnews.com/resources/state-information).
- They think they will never need long-term care. With the advances in medical science we are living a better quality of life to much older ages. This longevity, however, means more people will need care for age related issues alone. We also survive health events that 30 years ago we did not. Often, this leads to care. Better get your head around the fact that you will live a long life and some of that time will mean you will need extended care.
- They think they have enough money and can pay for care out of savings. Do you really have enough money? According to a detailed survey completed by Genworth Financial and Care Scout, the national average cost of a skilled nursing home in 2018 is $97,455 a year. Assisted Living national average is $45,000. Care at home, based on a 44-hour work week, runs $49,192.
With the cost of care going up from 2% to 3% a year, this cost will have a significant impact on most people’s budget and lifestyle. If you are age 50 today and need care at age 80 that means your costs will run $236,549 a year for a nursing home, $109,227 a year for assisted living and $119,402 a year for care at home. Even if you have millions in savings the impact is tremendous. The impact on taxes, lifestyle and legacy are also a major concern.
- They think Long-Term Care Insurance is expensive and hard to get. The truth is Long-Term Care Insurance is very affordable, especially if purchased prior to retirement. Unfortunately, there are articles which are dead wrong. Many insurance agents and financial advisors also are unaware of the pricing of these products, proper policy design, tax incentives and the Federal Long-Term Care Partnership Program which provides additional asset protection. For example, a married couple, both age 50, in good health, can find good coverage for under $200 a month for the couple (in many cases under $100 a month for one person). Premiums are based on age, health and the amount of benefits applied for. The amount of benefits you need are dependent on where you live and how you will fund a future retirement. This is why a qualified Long-Term Care Insurance specialist will help as they understand policy design and claims usage.
- They never thought about it because their parents never needed care. Family history only has a small impact on your risk of needing long-term care. While some things do run in families, the overall impact on family history is limited. Remember, advances in medical science have changed in the past 40 years. This means things which killed us years ago don’t today. If you don’t die … you live. Longevity itself is a risk for long-term care.
- Nobody told them they should be concerned so they never planned. Consider yourself told. The federal government has been encouraging long-term care insurance with tax incentives and the Federal Long-Term Care Partnership Program since 2005. It is up to you to plan for the financial costs and burdens of aging.
There is a big gap between the reality of a person’s “golden years” and what really happens as you get older. Unless you want to be surprised, your best bet is to plan before you retire. Long-Term Care Insurance, for many people, is an affordable way to address this issue.
Remember, however, you must health qualify in order to get a policy. If you have health issues it might be more difficult, or even impossible, to obtain coverage. It is best to plan when you are younger but even younger applicants get turned down.
A study conducted by the American Association for Long-Term Care Insurance (AALTCI) shows the decline rate for applicants below age 50 was 20% in 2017 compared with 12% in 2014. The decline rate for individuals between ages 50 and 59 was 22% in 2017 versus 17% in 2014.
Older folks have the most issues. This makes sense as your health changes as you get older. Those over age 70 have a 44% decline rate. Premiums are much higher for those that age as well.
You lock in premiums at your age and health at the time of application. While articles suggest that premiums will go up, the fact is most states now have rate stabilization rules in place which make the policies being sold today much more rate stable. In addition, premiums reflect the very low interest rate environment that exists today. Older, legacy policies, which were sold decades ago, were not priced this way.
So, oh, oh, oh, woah, oh … don’t allow the big surprise of long-term care impact you and your family as well as your savings and lifestyle. Seek the help of a Long-Term Care specialist who represents all the major companies. Ask how long they have been doing this full-time. In general, the person should have at least five years’ experience and have at least 150 clients with long-term care policies. Better if they have actual claims experience. Don’t confuse “experience” with knowledge, however. A person might have been in the industry for 20 years but has very limited experience in long-term care. A good specialist helps 10 to 20 clients a month.
It is always best to avoid crisis management. Affordable planning can give you and your family peace-of-mind and asset protection.