One of the most difficult parts of retirement planning is knowing if you will need long-term care in the future or how much it could cost.
While not everyone will need that care, it helps with activities of daily living like bathing or dressing, those who can face a large bill. Medicare, which most retirees trust, generally does not cover long-term care. (Skilled nursing care and rehabilitation services get limited coverage related to certain hospitalizations.)
“It is truly impossible to predict if, when, and for how long you may need long-term care,” said certified financial planner Michael Hennessy, founder and CEO of Harbor Crest Wealth Advisors in Fort Lauderdale, Florida. “Costs vary substantially, making it difficult to get the exact amount you may need.”
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A new online tool can help determine how much you can pay for LTC services, such as a home health aide or nursing home care, depending on where you plan to retire. There is a section that allows you to enter expected retirement income and assets if you want to get an idea of how much of the potential cost could come from income and savings (or you can skip that section).
The tool also explains how much insurance would cost to cover those expenses.
Although Saturday Insurance, an online agency that sells such policies, you can use the tool without providing personal identifiers; no name or contact information is required unless you choose to enter it.
“There may be more unbiased sources, but many times those online calculators are really helpful,” said PPC Doug Boneparth, president of the Bone Fide Wealth in New York.
The fine print on the agency’s website includes a tip: “We urge you to consult with your financial and tax advisors before making any purchase decisions.”
Someone turning 65 today faces a nearly 70% chance of needing LTC services for the remaining years, according to the US Department of Health and Human Services. On average, women need care longer (3.7 years) than men (2.2 years).
The monthly costs for LTC can be staggering: median $ 4,000 for assisted living care ($ 48,000 annually), $ 7,500 for a semi-private room in a nursing home ($ 90,000 a year), $ 4,400 for a home health aide ($ 52,800 annually) and $ 4,300 for homemaker services ($ 51,600 per year), according to Genworth.
“You need to make some assumptions about the cost and then see how it affects other areas of your financial plan,” said Boneparth.
Some retirees chose to “self-insure,” that is, rely on their own assets, to finance the unpredictable costs related to LTC. That could mean spending retirement savings, getting a reverse mortgage, or selling a vacation home, for example. Other options include leaning on family members or spending (or protecting) assets to qualify for a Medicaid-sponsored nursing home.
The simplest solution, LTC insurance, has become too costly a proposition for many consumers, contributing to a 60% drop in sales from 2012 to 2018, according to the LIMRA LOMA Secure Retirement Institute. With claims that exceed expectations, many insurers have also fled the space.
The average annual cost of the LTC premium for a 60-year-old couple is $ 3,400, according to 2019 data from the American Association for Long-Term Care Insurance. The value of the benefits when they reach the age of 85 would be $ 343,000 each.
Some advisers recommend that clients consider a hybrid policy that combines life insurance with LTC coverage. This can be done through a new purchase or by converting an existing term or full policy to the option.
While the details of each policy vary, the idea is that you can take advantage of the lifetime death benefit if you need it to pay LTC. Doing so reduces the amount your heirs would inherit. Some hybrid options provide LTC coverage beyond the death benefit.
However, it generally must be insurable, that is, approve the medical subscription, as with a direct LTC policy.
Usually you also need a large amount of money to finance it. Some insurers request a lump sum in advance, while others allow you to spread premium payments over a set number of years.
Also note that “chronic disease” users are different from LTC users. It depends on whether your condition is permanent. Long-term care users are less restrictive.
There are also annuities with LTC passengers, who promise to pay a certain amount at a certain time in the future. However, annuities can often come with higher continuous rates than other investments, and it’s another instance where you need a lump sum of money to make the purchase.
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