Have You Factored Long-Term Care into Your Retirement Plan Yet?

When it comes to retirement planning, the possibility of eventual long-term care is often overlooked. It’s easy to disregard the potential costs associated with aging when you are young but should you or a loved one become physically or cognitively impaired, you’ll find the cost of care can quickly consume your income and deplete your retirement savings.

 The U.S. government estimates that nearly 70% of Americans turning 65 will require some form of long-term care, whether that be part-time assistance completing daily activities, full-time care at an assisted living facility, or any level of care in between. The mistake many retirees make is planning to rely solely on private health insurance or public programs to cover these expenses; they are surprised when they discover their needs are either (a) not covered or (b) not covered for long enough. Suddenly, these individuals could be accruing more in care related costs than their income can support.

Of course, the future need for long-term care cannot be predicted, but it can be prepared for as a piece of your overall retirement plan.

What is Long-Term Care?

Essentially, long-term care describes a scope of services, supports, and/or medical care that individuals with disabilities, chronic illnesses, injuries, or diminished mental or physical capabilities may need to meet their personal care or to complete daily tasks. These often include bathing, eating, moving around the house, grocery shopping, taking medications on time, completing housework, and more.

Estimating Long-Term Care Costs

Just like any other expense, the cost of long-term care will vary by geographic location and the age at which care is needed. Genworth Financial provides a helpful tool for estimating care costs based on state, metropolitan region, and timeline. Based on their research, the following table illustrates the annual median costs of care by type in New Hampshire in 2018:

Genworth Cost of Care Survey 2018, conducted by CareScout®, June 2018

1 Based on annual rate divided by 12 months

2 As reported, monthly rate, private, one bedroom

Of course, the duration and level of long-term care will vary from person to person, but those aren’t the only factor to take into consideration when estimating long-term care costs:

• Statistically, women live longer than men, and therefore, (a) may need care for a longer duration of time or (b) may outlive their spouse and need a higher level of care without the spouse around to help out
• Individuals who desire to stay in their own home may need to budget for home safety modifications
• Individuals with adult children nearby may be able to rely on them for occasional assistance with things like transportation or grocery shopping, reducing the need for a higher level of paid care

Putting a Plan in Place

Long-term care needs can put a significant amount of financial and emotional stress on individuals and their families, but having a plan in place to cover such expenses will significantly ease these burdens and allow you to keep your retirement nest egg intact.

• Traditional Long-Term Care Insurance:  Investing in long-term care insurance involves paying into a policy now to cover the potential costs of care in the future. Like any other insurance policy, your premium will correlate with the benefits you choose; the higher or longer the level of care, the pricier the premium. However, your personal health and medical history at the time of purchase will also affect how much you’ll pay for coverage, which is why premiums tend to increase with age and can even become unobtainable for those with deteriorating health.

But, long-term care insurance is expensive and many pre-retirees have a hard time swallowing the ongoing premium payment without a guarantee they will ever need to cash in on the benefits. Traditional long-term care policies render zero benefits once the policy lapses.

• Hybrid Life Insurance Policies: As a result, some retirees are turning to “Hybrid Life Insurance Policies,” which are combined life insurance policies with long-term care “riders.” A rider is an add-on to a life insurance policy that will provide long-term care or chronic illness benefits in the event they are needed. Riders can help protect from inflation and provide designated beneficiaries with tax-free death benefits when the policyholder passes.

Or, if your policy has cash value, you may be able to access those funds through withdrawals, policy loans, or even by selling the policy as a life settlement option.

If you decide that an insurance policy fits into your long-term care plan, be aware that the different products on the market vary significantly in regard to offerings and cost. You’ll want to avoid overpaying for benefits you don’t need, but also ensure the benefits of your policy will be sufficient to cover the rising cost of care.

However, insurance policies aren’t the only option when it comes to funding long-term care expenses. If your circumstances allow, you may be able to rely on IRA withdrawals or various types of investment income to cover these expenses. But like any other piece of the retirement planning puzzle, your decision on how to fund long-term care should not be made in isolation, but in the context of your overall financial picture.

Have you accounted for potential long-term care costs in your retirement plan? If you have yet to put a plan in place, or are in need of a retirement plan evaluation, we would love to hear from you. The Certified Financial Planning ® professionals at NorthStar Financial Planning specialize in helping individuals, couples, and families prepare for a fulfilling and financially secure retirement. Contact us today for a complimentary  Get Acquainted meeting to discuss how we may be of assistance.

Blurb:

According to an annual study conducted by Genworth Financial, these were the 2018 National Annual Median Costs for varying types of long-term care:

• Homemaker Service- $48,048
• Home Health Aid- $50,336
• Adult Day Healthcare- $18,720
• Assisted Living Facility- $48,000
• Semi-Private Room in a Nursing Home- $89,297
• Private Room in a Nursing Home- $100,375

Long-term care needs can put a significant amount of financial and emotional stress on individuals and their families, but having a plan in place to cover such expenses will significantly ease these burdens and allow you to keep your retirement nest egg intact.

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Written by Rachel DeCarolis in collaboration with Lexicon Content Development