For the last 35 years, I have helped clients plan for retirement as well as how to address the issues of aging and how to remain independent. I was the Designated Daughter® (caregiver) for my parents, and because my parents and I had “the important conversations” and did the proper planning, I was prepared when I received that call that my father was diagnosed with lung cancer and my mother with dementia.
Thank goodness 15 years prior to this, my parents and I had taken the time to have the conversation, about what they wanted to happen if there were no longer able to care for themselves. Not only had we created a financial plan, but we had met with an estate planning attorney to create wills, trusts, as well as health and financial powers of attorney. In addition, my parents both purchased long-term care policies when options were affordable, and they were healthy!
Part of creating the life of your dreams is making sure you address all the what ifs in your life. Skipping this step can create unpleasant complications that can be avoided. Many of us are or will be caregivers to a loved one, but have you thought about who will take care of you when you are old or if something unexpected happens to you and you need care yourself?
Look at these statistics:
- When Social Security, Medicare & Medicaid were designed, life expectancy was 63.
- Today, our fastest growing population is age 85 plus.
- There are now more than 5 million people in the US with Alzheimer’s, and ½ of all persons over 85 have Alzheimer’s.
- By 2030, 70 million people in the US, or 1-in-5 people, will be 65, and another 1 million people will be 100 years old.
- 7 in 10 Americans age 65 or older are expected to need some type of long-term care.
- The need for healthcare and related services is exploding!
Learn how to be prepared, what you should do to ensure your life continues to run smoothly, and how to avoid costly mistakes. Have you thought about what you would like to happen should you need care?
Where would you like to live should you need care?
52% of people age in place, 20% move to assisted living and 28% move to a nursing home. The good news is that most people age in place, which is what most individuals want.
Who would you like to provide care?
Deciding if you would prefer a family member, an agency, a private care provider, an assisted living facility will probably depend on your personal situation. Based on yours, take some time to explore these options and the costs for each.
How do you want to handle your money and property as your lifestyle changes?
I remember visiting my stepfather one day only to find papers all over the place. When I asked him if he’d like me, as his Trustee and Power of Attorney, to take over the paperwork and bills, he immediately agreed. Since we had the legal documents in place, and his trust was funded (meaning we had transferred the ownership to his trust), the process was simple. We signed the change of ownership, so his son and I were the Successor Trustees. You see, estate planning is not just about what happens when you die, but what happens when you no longer are able to manage your affairs.
It may take a while to cover all these topics. But don’t put it off. Set goals, put them in your calendar, ask for referrals and get some help. Now I will share some information with you on the steps you can take to plan for your own long-term care needs. This is for educational purposes only. I highly recommend doing this with a professional to make sure you make the proper planning for your unique situation.
Create a Retirement Income Plan
Sit down with a certified financial planner and develop a retirement income plan to identify how much income you will need to cover your lifetime income needs. You will want to create a budget for yourself so you know what your lifetime expenses will look like. You will also want to analyze your investments to make sure they are properly diversified, and that you have adequate cash reserves.
I prefer having the monthly living expenses covered by guaranteed income sources like Social Security and pensions. The key is to identify your permanent income gap: Guaranteed Income – expenses. Now the secret is how to generate the income to cover this gap.
Since most people no longer have pensions, you can create your own “pension” — or guaranteed lifetime income — using fixed index annuities. A fixed index annuity is one of the best ways I have found to fund an annual income shortage using the least amount of assets. In addition, it moves those assets out of harm’s way and moves the risk to an insurance company.
Some fixed index annuities offer a long-term care rider that doubles the monthly benefit if the annuitant needs long-term care. This is an interesting concept because there is no underwriting. I suggest working with an advisor when looking to create a guaranteed income strategy.
Consider Your Options:
Now, depending on your personal circumstances, some individuals may qualify for benefits like Veterans, Medicare, or Medicaid.
Self-Insuring: You may think your best bet is to pay for expenses out of pocket. The problem with this plan is that long=term care costs can escalate, and retirement assets can shrink over time, limiting your options.
Medicare: Medicare is a federal health insurance program for those over 65 and it may pay up to 100 days (requires a co-payment) of medically necessary care in a skilled nursing facility, and the first 20 days are paid 100%, however a qualifying hospitalization must occur to activate this benefit. Notice, the words “skilled care”. This is not for custodial care.
Medicaid: a jointly funded federal-state health insurance program that provides coverage for those with low income and limited resources. The downside is that Medicaid sets limitations on the amount of assets you may own and income you may receive. And being on Medicaid will limit your choices of care facilities.
Some attorneys help people qualify for Medicaid with special Medicaid Trust planning. This may be something to look into if you and your spouse have limited assets and/or health conditions that limit your ability to purchase long-term care insurance.
What is Long-Term Care Insurance?
Long-term care insurance (LTC) is designed to help pay for home care, assisted living and nursing home care costs. Typically, LTC is associated with any personal or medical assistance an individual may need to accomplish the activities of daily living (ADLs), or if cognitive limitations/impairments are present. ADLs are bathing, dressing, continence, eating, toileting and transferring/moving oneself from seated to standing and getting in and out of bed.
Once you have satisfied your income needs and what other resources are available to you, consider purchasing a long-term care policy to cover the additional costs should you need someone to care for you in your home or should you need to move to assisted living.
What are the costs of care?
- The median U.S. annual private-room nursing home cost in 2021 was $108,405 and that number may double in the next 20 to 30 years.
- Since 52% of people prefer to age in place, the cost of home Health Aides runs around $62,000 based on 44 hours per week 52 weeks pre year.
- And Assisted Living Facilities run around $54,000.
My mother was at Sunrise Assisted Living from 2005 – 2010. The monthly cost started around $5000 per month, but once she needed memory care, and a higher level of services, the monthly fee ran around $7000. Thank God, she had a survivor pension, and a long-term care policy that paid 100% her costs.
Reimbursement vs. Indemnity Payments:
My mother’s long-term care plan paid out “cash indemnity benefits, not reimbursement. This meant that she received the same amount each month without turning in any receipts while on claim. Reimbursement normally requires you to turn in receipts for care, and often requires that you use licensed care services.
With a cash indemnity plan, the policy holder receives a specific amount each month, without restriction on how you use the funds, if you are on claim. This can be very helpful when you are using family members, friends, or private caregivers.
Types of Long-Term Care Policies:
Basically, there are five different types of policies or riders to help you fund some of the costs of long-term care:
Traditional Long-Term Care Insurance: With this type of insurance, you pay just for the cost of insurance and if you don’t use it, you lose it. These types of policies can be either reimbursement or cash indemnity.
Long-Term Care/Chronic Illness Riders: A rider that can be added to a life insurance policy to provide coverage for long-term care expenses should they arise. This rider will normally add a cost to your life insurance and will allow you to access the death benefit for LTC needs. In most cases, it’s an acceleration of the death benefit.
Asset-Based Long-Term Care Annuity: Combining an annuity with long-term care protection. LTC expenses will be paid from your annuity’s value up to the specified maximum monthly amount until the annuity is depleted.
Annuity Income “Doubler” for Confinement or Home Health Care: An option available on many fixed index annuity contracts, that once a policy holder meets the contract’s qualifications for a LTC claim, doubles the monthly annuity payout.
Asset-Based Long-Term Care Insurance – Life Insurance: This type of insurance product combines a life insurance contract with a long-term care policy providing long–term care benefit when needed. However, if LTC is not needed, the death benefit will be paid out upon the death of the insured.
This last option is a very popular choice today because of the flexibility. You can fund the policy with a lump sum or over a period of years, and immediately lock in a monthly benefit amount. You can also select an option so your monthly benefit will grow each year at 3-5% to help keep up with inflation. The policy can be purchased by a couple and the benefit can be shared. The company I prefer to use offers a cash indemnity payout, so you aren’t dealing with reimbursement.
The benefits of early planning are numerous, including:
- clarifying your wishes
- identifying the best possible resources
- protecting assets from the long-term care expenses
- minimizing confusion and stress during times of crisis
- easy access to information when needed
- increasing overall peace of mind
If you would like to sleep at night knowing all concerns have been addressed and that a team and a plan is in place to accommodate all those what ifs, feel free to book a complimentary session with me at www.talkwithkatana.com . In addition, I’d like to give you our Smart Women’s Empowerment Life Planner so you can organize your financial, legal and personal information.
Katana Abbott, CFP®, is a Retirement Income Coach and Certified Social Security Claiming Specialist, founder of the Midlife Millionaire® Solution, and the host of Smart Women Talk. For over 35 years, Katana has helped baby boomers plan for retirement, including how to create lifetime income, how to optimize their Social Security benefits, launch an encore career and prepare for long-term care. She has written several books, created a financial literacy course, and is a popular speaker. Katana has been honored by NAWBO as one of Detroit’s Top 10 Businesswomen, receiving the Breakthrough Award. To download her new retirement guide, Three Smart Strategies to Maximize Your Retirement Income, visit www.katanaabbott.com.