Provided by Terry Garland and written by Indigo Marketing Agency, a non-affiliate of First Allied Securities, Inc.
Possibly the most important financial action you will take in your life is planning for retirement. Much more than just making sure you have enough money in the bank to pay rent and go on some trips in your golden years, proper retirement planning involves taking into account a variety of factors and countless steps. This process can quickly become overwhelming and potentially result in missed elements.
One of the most common planning elements that ends up getting overlooked is long-term care. Statistics show that only 1 in 5 adults even make any effort toward financing their future long-term care expenses. (1) And since an average 63% of today’s 65-year-olds will require some form of long-term care during their lifetimes, it’s vital to have a plan in place to pay for these costs. (2)
November is Long-Term Care Awareness Month, which means that today is a perfect day to start thinking about your long-term care plan and researching your options. Here are some factors to think about when crafting your plan, as well as a few strategies to help you finance this piece of your retirement plan.
The Cost Of Long-Term Care
Long-term care costs are so high that they could potentially wipe out a bulk of your retirement funds. On average nationally, it costs $253 per day or $7,698 per month for a private room in a nursing home. (3) Furthermore, because of their longer life expectancy, women pay significantly more for long-term care. The average amount of time women require long-term care for is 3.7 years (or around 44 months), adding up to $338,712 in expenses. (4) For men, who need long-term care for an average of 2.2 years (or around 26 months), that equals $200,148 in expenses.
For assisted living, the average monthly cost is $3,628, but it can range upwards of $5,000 per month. And by 2026, the average cost is expected to increase to $4,876 per month. (5) These costs can vary based on the level of care and amenities needed, as well as the size of the room and the location.
Whether you’re worried about potential health concerns or want to protect your hard-earned wealth, it’s important to understand the long-term care insurance options available to you and whether or not a policy makes sense for your lifestyle and needs.
Long-Term Care Options
Long-term care coverage isn’t cheap either, but it pales in comparison to long-term care costs. Here are some options to consider when creating your long-term care strategy.
1. Traditional Long-Term Care Insurance
With traditional long-term care insurance, you pay a premium in exchange for the ability to receive benefits if they are needed. If you need long-term care at some point, the policy provides you with money to pay for it. If you never need long-term care, then you receive no benefits. It’s a “use it or lose it” policy.
Just like any insurance policy, you will have some coverage choices to make:
You can choose the level of insurance you want and select the daily benefit amount for care in a nursing home. You can also add home-care coverage if that is a priority for you. In order to choose the right coverage amounts, you need to know what the cost of long-term care looks like in your state. For example, a private room at a nursing home in California will cost an average of $10,646 a month, and hiring a home health aide could set you back over $64,000 for the year.
Length Of Coverage
You must also decide on the length of time you want the benefits to be paid. Common options are one, two, three, or five years, or for your lifetime. Logically, the longer the benefit period, the higher the premiums you will need to pay.
Your policy will also indicate “benefit triggers,” or conditions which must exist in order to receive benefits from the insurance company. A tax-qualified plan only pays benefits once you are unable to perform two of six activities of daily living without substantial assistance for at least 90 days, or have a cognitive impairment like Alzheimer’s. Non-tax-qualified plans may have less restrictive benefit triggers.
Inflation And Premiums
If you want, you can have your benefits increase with inflation to match future care costs. It is also important to note that premiums can increase as they are not usually set in stone.
2. Life Insurance With A Long-Term Care Rider
With a traditional long-term care policy, people sometimes feel that if they buy it and don’t use it, they have wasted their money. Because of this, several hybrid products have emerged. One very popular solution is a life insurance policy with a long-term care rider. This strategy is enticing because if long-term care is needed, the funds are available through your policy’s death benefit. If you don’t spend the total benefit available, your beneficiaries will receive the balance upon your death, thus no wasted money.
If you need life insurance, getting your long-term care coverage as a rider may be a good option. This way, someone will be benefiting from the premiums you are paying, whether it is you or your heirs.
3. Annuity With A Long-Term Care Rider
If you don’t need life insurance, another combination product may be better suited to your situation. If you purchase a variable annuity, you may have the alternative of adding a long-term care rider onto the contract. Since 2010, the IRS allows for the long-term care portion to be used tax-free.
After purchasing the annuity, you would select the amount of long-term care coverage you want, often two to three times the face value of the annuity, as well as the length of time you want coverage. Finally, you have to decide if you want inflation protection.
This option makes money available to you if you need long-term care. Otherwise, you can cash out the annuity when it matures (in which case you would lose your long-term care coverage), or let it accumulate and ultimately pass on the assets to your heirs.
Obtaining long-term care coverage through an annuity can be appealing because it is generally less expensive than stand-alone insurance and you can receive coverage without medical underwriting. Annuities tend to be less common than the other choices, though, because of the current low interest rates and the large up-front investment.
4. Save On Your Own
Consider starting a savings plan specifically for future healthcare needs. One option is to create a separate, high-yield savings account and contribute a specific amount every month, building a contingency fund for whatever healthcare expenses come your way. If you end up not needing long-term care, the money is still yours and can be used for your living costs, unexpected expenses, or an inheritance for your heirs.
Start Planning Now!
No matter where you’re at in life or the financial challenges you face, the important thing is just that you begin planning for this critical aspect of retirement. At Golden Capital Management, our goal is to create effective solutions to your retirement obstacles, optimizing every piece of your financial plan and giving you confidence in your financial future and the quality of your golden years. If you have questions about your long-term care options or want to review your current policies to make sure you have the coverage you need, call us today at (515) 226-0115 or email firstname.lastname@example.org.
Terry Garland is the founder and CEO of Golden Capital Management with more than 25 years of industry experience. He works with individuals, small-to-medium-sized businesses, and medical professionals, including physicians and dentists, allowing them access to a wide variety of specialized services and investment vehicles to fit their specific needs. He graduated from Drake University and attended the Wharton School at the University of Pennsylvania and is a certified wealth strategist and a registered principal. With offices in Des Moines, Iowa, and Carlsbad, California, he serves clients across the country. Learn more by connecting with Terry on LinkedIn.