By Karin Grablin
Chances are, you probably know someone who has received long-term care.
In fact, the U.S. Department of Health & Human Services estimates that 70% of people turning age 65 can expect to use some form of it during their lifetimes.
Many health-related issues create the need for long-term care: chronic illness, advanced age, accidents, stroke or Alzheimer’s disease, etc. If one of these causes you to lose the ability to independently perform at least two activities of daily living (such as eating, dressing or bathing) you are likely a candidate for long-term care assistance – for some amount of time.
Long-term care can be expensive. The national average annual cost for a private room in a nursing home is $97,612 a year (per a 2014 Lincoln Financial Group study) and $50,944 for a one-bedroom unit in an assisted living facility. Therefore, a prolonged long-term care event could wipe out a retirement nest-egg well before death. For a married couple, retirement savings might care for the first spouse to get sick, but there could be nothing left for the surviving spouse.
That’s why a key component of any well-designed retirement plan should always address long-term care risk – and how to pay for it. Traditional options to pay for care include:
- Medicare, which doesn’t cover long-term care, if that’s the only care you need. Medicare can help with rehabilitation in a facility after a hospital stay, but only for 100 days.
- Medicaid, which pays for long-term care, but only for individuals with limited means: you must deplete most of your assets before you’re covered. With limited means, your choice of care facilities is limited, too.
- Family members, who often assume the financial burden of a loved one’s care – frequently the option of last resort.
- Insurance, which traditionally would cover some/all of this cost for a period of time. Traditional insurance can be expensive, and if the coverage is never needed, those premiums paid are gone forever.
A fifth, more popular option is called hybrid life/long-term care insurance. Essentially, it combines permanent life insurance with a long-term care insurance rider to offer three potential benefits:
- Long-term care coverage – A pool of tax-free funds to spend for long-term care costs, often a multiple of the premiums paid in.
- Life insurance – A death benefit paid to beneficiaries.
- Return of premium – A chance to cash in the policy, receiving some or all of the premiums paid back.
The beauty of this arrangement is that, while insureds can only use one of these benefits, they will get something for their investment, so it can be considered a form of retirement investment.
As with any insurance, one must qualify for the coverage, and there are other features/restrictions to consider, so this fifth option may not be for everyone. Initial premiums are relatively large and don’t fit every budget. But for those that haven’t considered long-term care risk as part of their retirement planning, it warrants careful consideration – the sooner, the better.
No one can predict how long their retirement might last, or what financial “hiccups” they may encounter along the way, but the more a retirement plan addresses common risks such as the need for long-term care, the better the chances are that a retirement plan will be successful. After all, isn’t that what we all want?
The content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.