November is Long-Term Care Awareness Month, and a great time to review some long-term care stats and how you can work to protect yourself from the devastating effects of long-term care expenses. Seven out of 10 retirees will need some form of long-term care, which means that, for couples, there is a 91 percent chance of one spouse needing care.
People generally plan for 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 a 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? Is he or she the most qualified person to provide care? Are there aspects of care, including personal hygiene, which you would wouldn’t want them to have to perform?
Gifting and trusts used to be a popular way to protect assets, however uncertainty in the legal landscape makes this a somewhat 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, as your needs dictate. 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 early to mid-50s, while you’re still healthy enough to qualify, although your needs may differ.
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 at 3.5% and 5% annual increases. Premiums, like other forms of health insurance, are generally not guaranteed to remain level, which makes sense when you consider that your available benefit is not usually remaining level either. When pricing a policy, you should consider whether you could continue payments in the event of a premium increase.
New York has recognized the crippling fiscal effects of Medicaid, and has taken steps to incentivize people to purchase long-term care insurance by implementing the New York State Partnership for Long-Term Care. The Partnership provides asset protection from Medicaid spend-down for people who purchase a qualifying long-term care policy, and who outlive their policy’s benefits. This can be important if you’re concerned that expenses related to your spouse’s care may leave you destitute after their passing.
New York even has reciprocal arrangements with many other states, so even if you retire to a different state, you can still receive some degree of asset protection through the Partnership. These agreements vary by state, so be sure to do your research.
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 failing health. 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 financial advisor 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 is a partner at Sterling Manor Financial in Saratoga Springs, and Rhinebeck.