Hidden Retirement Planning Gem: The Potential of Long-Term Care Insurance

Good chance if you are reading this article, you are in your 40s or 50s, maybe your 60s. Life might be good, and you are thinking clear skies are ahead. Positive thinking is not a bad thing at all. Why would you need to think about aging or Long-Term Care Insurance?

You are standing on the brink of the golden years, convinced that the trials of aging are stories for others, not for you. Denial, as comforting as it may be, can't erase the stark realities outlined in government studies: if you're fortunate enough to celebrate your 65th birthday, the chances of requiring long-term care are akin to a coin toss. 

• Long-Term Services and Supports for Older Americans: Risks and Financing Research Brief | ASPE

When you or a loved one needs long-term care, you will no longer think about statistics since the reality is 100%.

The National Association for Home Care & Hospice (NAHC) and the Home Care Association of America (HCAOA) report that the United States is "facing an unprecedented crisis in developing an adequate workforce of home care aides and nurses to care for the country's burgeoning elderly and disabled population. It is estimated that between 2020 and 2030, the number of U.S. citizens 85 years of age or older will double from the current 2.4 million." They say the increasing aged population in the U.S. is intensifying the existing deficit of caregivers, a shortfall that currently impacts over 12 million Americans across various age groups.

It Will Happen or Not - What is Your Plan?

Statistics or not, the need for long-term care will either be a reality, or it won't. The allure of invincibility is potent, yet it obscures the foresight needed to plan for the consequences of aging. Long-term care impacts your family and finances, and yet there is a good chance you have not seriously addressed its effects in your retirement plan, or at least not seriously.

The decisions you make about long-term care today dictate where you live and how you live, the people you interact with, your daily activities, and the dynamics of your family and community relationships. As you contemplate aging and the need for long-term care planning, you're delving into profound reflections on life's significance.

Remember, long-term care is personal care; the timing, manner, and provider of this care profoundly shape your personal narrative, as well as the stories of your caregivers and the collective story of your entire family.

It's crucial to have a strategy in place for long-term care, yet Long-Term Care Insurance frequently slips the minds of many until it's too late and health challenges arise. Unfortunately, medical underwriting can become a significant barrier at that point, often hindering the ability to secure coverage amidst serious health conditions.

• What Is Underwriting In Long-Term Care Insurance?

Some people think Long-Term Care Insurance is a scam, despite tax benefits, federal and state regulations, and the availability of the Long-Term Care Insurance partnership program that provides dollar-for-dollar asset protection to those with a qualified policy. 

Many envision scenarios where adult children or spouses morph into caregivers, but this romanticized notion crumbles under the weight of practicality. Spouses, often navigating their own aging journey, may find themselves ill-equipped to provide the exhaustive, hands-on assistance required for daily living activities. Children, entangled in their lives and responsibilities, may not be able to offer the quality of care needed. 

Relying on family may seem like a plan, but it's a plan fraught with emotional and physical strain, one that can inadvertently erode the bonds it aims to preserve. Long-Term Care Insurance emerges not just as a financial tool but as a beacon of thoughtfulness, a way to maintain family harmony while ensuring you receive the compassionate, professional care you deserve.

Long-Term Care - Family Issue and Cash Flow Issue

While the United States has one of the highest health care costs in the world, many people ignore the enormous financial impact that long-term care can have on families. 

• Who Needs Long-Term Care?

In the United States, long-term care is delivered in a variety of settings, including:

• Nursing homes: Nursing homes provide 24-hour skilled nursing care and assistance with activities of daily living (ADLs), such as bathing, dressing, and eating. Many nursing homes also care for those with Alzheimer's and other dementias.
• Assisted living facilities (ALFs): ALFs provide assistance with ADLs but do not offer the same level of skilled nursing care as nursing homes. Some ALFs have memory care wings for those with mild cognitive impairment.
• Home health care: Home health care provides all levels of care, including custodial care (help with daily living activities), supervision for those with memory issues, and skilled nursing care, therapy, and other services in the home. 
• Adult day care centers: Adult day care centers provide supervision and activities for adults who need assistance with ADLs. There are over 5,000 adult day care centers in the United States, often serving as a respite for family caregivers or allowing those to remain at home longer by spending their waking hours in a center with socialization and care, returning home at night.

LTC Costs Increasing Rapidly

Who might think you can fund your future long-term care costs yourself, but what is your net worth today, and do you want to risk a portion, or even all of it, in addition to placing a burden on those you love?

• Long-Term Care Insurance vs. Self-Funding: The Options Are Clear

All this care is costly. According to the LTC NEWS Cost of Care Calculator, the median annual cost of a private nursing home room in the United States is approaching $110,000. The median annual base cost of assisted living is $54,000. These costs are only expected to rise in the future.

You probably don't want to spend time in a nursing home and most long-term care is delivered at home or in assisted living. Home care is generally less expensive, but it can be very costly if you need 24/7 care at home.

Transition to Assisted Living

Many individuals transition to assisted living facilities when their care requirements surpass the capabilities of in-home support or when they seek enhanced social engagement.

Today's assisted living residents grapple with more numerous and severe health and aging challenges than in previous generations, leading to additional surcharges from facilities on top of the standard fees, consequently escalating the total expenses. 

National Center for Health Statistics data reveals that assisted living facility residents are now older, frailer, and dealing with more significant health impairments. Specifically, 55% of these individuals are aged 85 or above, 77% need assistance with bathing, 69% with walking, and 49% require help with toileting.

Additionally, the health profile of residents has become more complex; over half suffer from high blood pressure, while a third are dealing with heart disease or arthritis. Depression has been diagnosed in nearly one-third of the residents, and at least 11% are battling serious mental illnesses. 

• Mental Wellness and Aging: Ways to Maintain Good Quality of Life Now

Furthermore, up to 42% are living with dementia or have moderate-to-severe cognitive impairments, underscoring the critical and growing need for comprehensive care and support in assisted living facilities.

All of this comes at a cost that will become problematic unless you are prepared. 

Don't Think You Are Covered for Long-Term Care – You Probably Are Not

Even today, some people think they are already covered for long-term care while, in fact, they are not. Disability policies available through work only replace a small portion of your income if you cannot work through age 65. Very few employers offer tax-qualified Long-Term Care Insurance policies, and those that do often lack many benefits or pay much more than they should.

• Think You Have Long-Term Care at Work? Probably Not

Health insurance, including Medicare, will not pay for most long-term care costs. These programs pay for a limited amount of skilled care and pay nothing toward custodial care, which most people will require in the long term. Medicaid is designed for those with little or no income and assets, and it will pay for all types of long-term care services through Medicaid-approved providers. 

Generally, this means that if you need long-term care, you will likely have to pay for it out of pocket unless you have limited financial resources or own a Long-Term Care Insurance policy. This lack of coverage means you can quickly deplete your savings, retirement accounts, and other assets.

For example, if you need five years of care, the national median cost would be $558,539 (three years of home care starting in 2025, 1 1/2 years in assisted living, and six months in a nursing home.) This is just the cost of care. It does not include the cost of other expenses, such as transportation, medication, and clothing.

Remember, you don't know when, how long, and the type of care you will require. If you have Alzheimer's and need five years of memory care in a facility, your cost could run well over a million dollars; although that risk is smaller, the financial impact is substantially greater.

If you are not prepared for the financial impact of long-term care, it could devastate your family. Your loved ones may have to take on debt or even sell their own assets to pay for your care if they want you to avoid Medicaid.

• Guarding Your 401(k) and Nest Egg Against the Rising Tide of Long-Term Care Costs

Family Members Not Prepared as Caregivers

In addition to the financial impact, long-term care can have a significant emotional impact on family members. Family members who become caregivers are often untrained and unprepared for the demands of caregiving. They may have to deal with difficult behaviors, such as incontinence and aggression. They may also have to give up their normal lives to care for their loved ones.

When you need long-term care, your life will not end, but your loved ones' lives will change forever.

The emotional toll of caregiving is significant. Caregivers may experience stress, anxiety, and depression. They may also have to deal with guilt and resentment.

In addition to the emotional toll, caregiving also interferes with careers and families. Caregivers may have to reduce their hours at work or even quit their jobs altogether. They may also have to neglect their own families to care for their parent -- or parents.

Why LTC Insurance?

The financial benefits of LTC Insurance should be clear. Without an LTC policy, you will be responsible for the cost of care unless you have little or no income and assets to start with. 

You might read that Long-Term Care Insurance is expensive. Yet, most people find that a properly designed policy purchased before you retire is very affordable. 

• Long-Term Care Insurance Premiums Costs: the Real Factors, Considerations, and Price Ranges

LTC Insurance also provides a number of other benefits, such as:

• Access to your choice of quality care: LTC policies offer guaranteed tax-free benefits that allow you to pay for your choice of quality care providers at home or in a facility of your choice.
• Care coordination: LTC Insurance policies often include care coordination services. Care coordinators can help you navigate the long-term care system and find the needed services, reducing the stress on loved ones.
• Tax benefits: There are many tax advantages of a tax-qualified LTC Insurance policy, including possible tax deductions (federal and state), tax-free benefits, and the ability to use pre-tax money from health savings accounts.
• Peace of mind for your loved ones: Knowing that you have an LTC policy will give you and your loved one’s peace of mind. They can rest assured that you can afford the care you need when you need it.
• Get your money back: Some Long-Term Care Insurance policies come with added features such as death benefits or a return of premium rider, ensuring that if you are fortunate enough to not require care, you still receive financial benefits. Although these added options may elevate the premium costs, the assurance that you will financially benefit regardless of care necessity provides an extra layer of peace of mind for many.

Avoid Delay and Accept Reality

There are certainly better things to think about. Yet, once you have a plan for long-term care in place, you will feel much better since you will know you have access to your choice of quality care when you need it without placing a financial strain on you and your spouse or burdening those you love.

Crisis management is hardly ever effective. By postponing crucial decisions today, you inadvertently burden your family with these choices in the future, limiting their options and relinquishing your own control over the situation. Such a decision can irrevocably alter their lives.

Typically, individuals secure Long-Term Care Insurance in their 40s or 50s. However, attractive, and reasonably priced coverage is still attainable in your 60s and later, contingent on your health status. Remember, it is your current good health that provides you with these choices, but health can unpredictably change.

Now is the time to proactively explore and understand your options, ensuring you're prepared for whatever the future holds.