INVESTORS, PLANS & MONEY: that will never happen to me


If you ever need long term care, will you be ready?

For some, long-term care promises to be a wake-up call.

Few people think they will ever need some form of long-term care, whether in an assisted living facility or a retirement home. But the real figure is closer to 70 percent of people aged 65 or older. While part of that number will come from people in rehabilitation for a brief period following the increasing number of knee or hip replacements, the rest may be there because they cannot perform two of the six “rehabilitation activities.” daily life ”or ADLs used to measure independence: eating, bathing and hygiene, dressing, grooming, mobility, grooming and continence.

And if not in a retirement home, those who lack independence would need the support of loved ones and home helpers, which also comes at a high cost.

When we calculate our financial needs in retirement, the cost of long-term care is often overlooked or underestimated. And this failure can derail even the best-worked out plans.

But ask someone if they’ll need long-term care in the future, and the common refrain will be, “Don’t worry, this won’t happen to me.

Remember that about 70 percent of these people will be wrong. So, to understand how to offset or lessen this drain on retirement savings, let’s take a look at the payment alternatives available.

Long term care

People are living longer. Let’s look at people aged 65 today: 52% of men will turn 85, 31% will turn 90, and 13% will turn 95. For women, 62% will reach 85, 41% will reach 90 and 20% will reach 95. according to the social security administration. And they live with chronic health problems. So even though they plan long term care costs, they often underestimate, which is not difficult to do.

Genworth Financial has been tracking the cost of long-term care services for almost 20 years. Their Cost of Care survey reported these average annual costs for the United States in 2020:

  • Home help services at home: $ 53,768
  • Home health aide: $ 54,912
  • Community daycare for adults: $ 19,240
  • Residence with community assistance: $ 51,600
  • Semi-private room in a nursing home: $ 93,075
  • Private room in a retirement home: $ 105,850

Note: This is the average in the United States. The cost of care in the North East is extremely high compared to other regions.

And because demand will grow faster than supply as baby boomers continue to age, those costs are expected to nearly double over the next 20 years.

So if we – or our parents – needed long-term care, would we be able to afford it?

Dependence insurance

In the past, long-term care insurance was a traditional way to cover these costs. The premiums were affordable for many and the coverage was generous. But over the past 20 years, changes in the structure of the industry and rising healthcare costs have caused many insurers to abandon this business.

Those who continued increased premiums uncontrollably while reducing benefits. They have capped daily payments, extended waiting periods before policies take effect, and limited the length and maximum amount the policy will pay.

Premiums are lower for younger buyers, but you could be paying premiums for decades. And, if you die before needing long-term care, all premiums paid would be forfeited.

The solution to the problem of use or loss? The industry has created hybrid long-term care insurance policies, which combine life insurance benefits and long-term care coverage. Policies can be purchased for a lump sum or paid out over time. If you die before needing long-term care, your named beneficiaries receive the death benefit.

But, if you need long term care, the policy will pay like a traditional policy, according to what you have selected for per diem, elimination period, duration and total cap. And, depending on use, the death benefit will be reduced or eliminated.

A detail: do you remember the waiting period? Today’s policies typically have 90-day elimination periods, with some up to 180 days. This means that you have to pay for the first 90-180 days of nursing home care, for example.

Veterans benefits

The Department of Veterans Affairs (VA) may not be the easiest bureaucracy to navigate, but it has some valuable programs for those who qualify. And once approved, benefits are paid retroactively to the date of application.

If you need help, contact the VA directly or use an organization or person recognized by the VA known as the Veterans Service Organization (VSO) to avoid the high number of aggressive scammers.

If you are receiving a VA pension and are primarily housebound due to a permanent disability, you may be eligible for the VA Housebound program. The program can increase the veteran’s pension income and allow credit for unreimbursed medical expenses.

Alternatively, you may be eligible for the VA Aid and Attendance (A&A) benefit. (But you can’t receive A&A and Homebound). A&A requires you to meet four criteria that work in combination: military service (on certain dates), an asset test (which measures your financial need), a medical need, and an income test. The latter two work as a ratio of how well your medical needs can be met from your income.

In 2021, A&A could increase a veteran’s allowance to over $ 23,000 per year and almost $ 37,000 for two married veterans who are both eligible for A&A.

This benefit is in addition to other services offered to veterans.

Medicare vs. Medicaid

Many are unaware that Medicare does not cover the costs of long-term nursing care. It covers short-term care, for example following hospitalization, but it only pays in full for 20 days. He partially pays for 21-100 days, then you’re on your own. Medicare coverage is related to health, not care.

The federal government will cover the cost of skilled nursing care, but it will be through the Medicaid system and only if you have limited income and accountable assets. (And some people’s assets are too large to ever qualify).

For those who might qualify, what few people understand is how these assets are calculated. The term used is “spend,” which means how much of your existing assets you must spend to be eligible for assistance. The person in care has one calculation and the surviving spouse has another. It’s worth the time to invest in figuring out the details.

A final factor is the “Medicaid payback”. In the process of reducing expenses, you are allowed to keep a house, a car and some other assets. Once you and your spouse are deceased, Medicaid may present the accumulated bill it paid for your care (and possibly that of your spouse) as “first position” against the assets inherited from your beneficiaries, including the house. . If there is nothing more to inherit, the invoice disappears.

By performing these calculations, your assets may be protected by mechanisms such as trusts, but Medicaid has a 5-year “look-back” period during which it prohibits asset transfers. In short, eligibility for this benefit should be part of careful advance planning, which is best done with the help of an estate advisor or planner.

Personal fund

Once long-term care is on the horizon for you or your spouse, the first thing you’ll likely do is make a list of all the financial resources you have available to help pay for it. This can include your existing savings, investments, pensions, IRAs and 401 (k), as well as the equity in your home for an equity loan or reverse mortgage. Additionally, you can list marketable whole life insurance policies that can generate cash through life settlement or surrender.

More creative solutions could include insurance products with critical care endorsements that allow the distribution of the bulk of the death benefit over the life course to cover the costs of long-term care.

In summary, the cost of long-term care is high enough to merit being part of any discussion of pension plans. Yet many believe this could never happen to them.

If you are prepared, the worst thing would be to have the resources when you need them

The best thing would be to have the peace of mind of knowing that you are prepared, that you never need care, and that you have a structure that leaves all the preparation resources at the disposal of the heirs and the heirs. beneficiaries.

Bill Harris is a Retirement Management Advisor (RMA), Certified Financial Planning Practitioner (CFP), Master Elite Advisor Ed Slott and author of “Inheriting Your Spouse’s IRA”. He is President of WH Cornerstone Investments, a financial advisory firm located in Kingston, Massachusetts. Learn more about

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