Seven-in-ten retirees will need some form of long-term care, which means that, for couples, there is a 91% chance of one spouse needing care.
November is Long-Term Care Awareness Month. Let’s talk about how you can provide for your care, while protecting your family and assets from the risks associated with long-term care. This is an issue that will affect nearly everyone.
People generally plan for their long-term care for two reasons. First, they want to make sure that they receive the best care available, by qualified caregivers. Second, they want to make sure that their assets are protected so that their spouse will be able to continue his/her standard of living. The average widow outlives her husband by twelve years – what will those years look like if the couple’s nest egg was spent on her husband’s long-term care?
In this part of New York, long-term care can cost upwards of $10,000/month. With an average nursing home stay of more than 2.5 years, you can see how quickly assets can be depleted. So, what is a person to do?
Some people are adamant that they will take care of their spouse in the event they need care. This strategy is well-intentioned, but generally not the best. Often care begins with one spouse providing it, but the needs can quickly outpace the spouse’s ability or skill level. Could your spouse pull you out of a bathtub today? Could they do it twenty years from now? Are they the most qualified person to provide care? What if your spouse pre-deceases you? Who will take care of your spouse after you die?
Gifting and trusts used to be a popular way to protect assets, however uncertainty in the legal landscape makes this a risky strategy. There is currently a five-year look back period for gifts, and it’s very possible that period could be extended. Will you know when you’re five years from needing care? What if the look back goes to ten years? Today, we see this type of planning used when a more effective strategy isn’t available.
Bar-none, the most effective strategy for planning for the day your health changes is private long-term care insurance. Insurance can provide the flexibility of receiving care from a qualified professional caregiver in your home, an assisted living facility, or a nursing home, or in all three setting as your needs change. This means that you can still be surrounded by your loved-ones, without burdening them with your care. We feel the prime age range for securing coverage is in your mid- to late-50s, while you’re still healthy enough to qualify, although your needs may differ.
Here’s what to look for in a long-term care policy:
1. A good insurance policy should include an inflation protection component, so that the policy’s benefit will increase as the cost of care increases. These inflation protection benefits are generally available with between 3% and 5% annual increases.
2. A policy should allow you to receive care where and how you like: in your home, an assisted living facility, or a nursing home, as your needs demand.
3. Many policies will offer a cash benefit; a portion of your benefit paid directly to you rather than to your care provider. This benefit can be used for in-home modifications and other expenses related to your needs.
4. Your policy should provide a daily benefit large enough to cover the cost of care in the region you plan to receive it. Remember that any shortfall will have to be paid out-of-pocket.
5. Make sure your carrier has a high credit rating. Since any guarantees are based on the claims-paying ability of the carrier, you’ll want to be confident your carrier will still be around when it comes time to pay for your care.
When you’re young and providing for a family, the risk to your family is that you’ll die prematurely. Once you’re retired, the risk is often no longer death, but the day your health changes. Do you have a plan to provide for your care? Long-term care insurance is not the only way to plan for your care and associated expenses, but it is the most foolproof. If you don’t qualify for insurance, then trust work or gifting may be necessary.
At the very least, you should be discussing your needs with your family and your Certified Financial Planner® professional to ensure that you know your options, and are able to make an informed decision on a strategy. Your advisor is the best person to educate you about the options, based on their understanding of your unique circumstances.
Stephen Kyne, CFP® is a Partner at Sterling Manor Financial, LLC in Saratoga Springs and Rhinebeck.