Does Your Retirement Plan Include Long-Term Care Coverage?

Alano D. Massi, MBA, CFP®
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This is one of the most important subjects I discuss with my Clients as their fiduciary advisor. Before recommending any course of action as to whether Long-Term Care insurance is appropriate, I always run a comprehensive insurance-needs analysis with the goal of determining the right amount of coverage needed, if any, before exploring any policy options.  The last thing that anyone wants to do, other than being completely ill-prepared for the expenses related to Long-Term Care insurance coverage, is to over-insure.  It defeats the whole purpose.

Sure, it’s an easy assumption that premium costs will be expensive, and the cost of healthcare inflates at the same rate for everyone.  However, do not simply purchase a policy based on some general national average need or cost you might have been pitched.  Long-Term Care should be approached just like every other portion of your financial plan… personally.  Based on your retirement plan, how much insurance coverage do you need, and how much of your investment assets or other financial resources are you willing to earmark for Long-Term Care expenses?  The cost of your premium and amount of coverage needed will depend on your answers.

For example, a retired couple may have enough saved to pay for one spouse’s Long-Term Care projected costs, and only need/want an insurance policy for one spouse.  On the other hand, a couple may decide that, even though both have enough savings to cover Long-Term Care expenses, both spouses agree they would rather give the majority of assets to their children upon death, and prefer not to allow Long-Term Care costs to reduce the value of their estate plan.  Therefore, this particular couple wants coverage for both spouses.  Now, do they want in-home care coverage or nursing home care coverage?  And, for how many years?

Below are some facts about Long-Term Care and how it works.  As always, consult a fiduciary advisor before committing to any policies.

Long-Term Care insurance serves to support personal care necessities. In addition to medical care, Long-Term Care insurance provides assistance with the basic personal tasks of everyday life, or Activities of Daily Living (ADLs), including:

  • Bathing
  • Dressing
  • Using the toilet
  • Transferring to or from bed or chair
  • Caring for incontinence
  • Eating

Long-Term Care services can also assist with everyday tasks, or Instrumental Activities of Daily Living (IADLs), including:

  • Housework
  • Managing money
  • Taking medication
  • Preparing and cleaning up after meals
  • Shopping for groceries or clothes
  • Using the telephone or other communication devices
  • Caring for pets
  • Responding to emergency alerts such as fire alarms

The following is according to the U.S. Department of Health & Human Services from the office of the Assistant Secretary for Planning and Evaluation (ASPE):

  • “Most Americans underestimate the risk of developing a disability and needing long-term services and supports (LTSS). Using microsimulation modeling, we estimate that about half (52%) of Americans turning 65 today will develop a disability serious enough to require LTSS, although most will need assistance for less than two years. About one in seven adults, however, will have a disability for more than five years. On average, an American turning 65 today will incur $138,000 in future LTSS costs, which could be financed by setting aside $70,000 today. Families will pay about half of the costs themselves out-of-pocket, with the rest covered by public programs and private insurance. While most people with LTSS needs will spend relatively little on their care, about one in six (17%) will spend at least $100,000 out-of-pocket for future LTSS.”

A few other facts associated with Long-Term Care:

  • Someone turning age 65 today has almost a 70% chance of needing some type of Long-Term Care in their remaining years.
  • Women typically need care longer (3.7 years) than men (2.2 years).
  • Over 65 million people in the US were unpaid family caregivers to an adult or child. About two-thirds are women.
  • Medicare only pays for Long-Term Care if you require skilled services or rehabilitative care. It does not pay for non-skilled assistance with ADLs, which make up the majority of LTC services.
  • Medicaid does pay for the largest share of Long-Term Care services, but your income must fall below a certain level and you must meet minimum state eligibility requirements to qualify.
  • Most employer-sponsored or private health insurance only cover the same kinds of limited services as Medicare. If they do cover Long-Term Care, it is usually only for skilled, short-term, medically necessary care.

While the cost of Long-Term Care insurance coverage can certainly present challenges to a financial plan, there are options we are happy to discuss with you that may assist in funding your premiums. The form you can download will allow you to complete a personal financial profile.  Once reviewed, we can assist in structuring your retirement plan to determine the need and financial impact of implementing Long-Term Care insurance coverage.  Contact us for a no-obligation consultation so a fiduciary advisor can listen to your situation and concerns.