We all know that as we age, we simply aren’t going to have the same capabilities as when we were younger. We might not be as physically strong, or we might tend to forget minor details more frequently. While that is a normal part of life, what if things take a turn for the worse and you’re no longer able to take care of yourself on a day-to-day basis?
That is where long-term care services come into play. Recent research shows that 70% of people will need these types of services at some point in their lives. Because of the frequency that people need these services, as well as the high costs that can occur, we firmly believe that planning for long-term care expenses is a key part of your retirement plan.
In this post, we’ll go through what exactly qualifies as long-term care, some common mistakes we see people make, and some options to consider so you’ll be covered if you need help.
Long-term care refers to helping people perform activities of daily living (ADLs). There are six ADLs, and to qualify for long-term care, you need to be unable to complete at least two of them without assistance.
These activities include bathing, eating, dressing, using the bathroom, transferring from one place to another (like a couch to a bed), and continence. If you aren’t able to do these on your own, you’ll need assistance. The question then becomes: How do I plan for this type of scenario? Do I pay for it out of pocket, do I purchase an insurance policy, or some other alternative?
Before we get there, let’s discuss what not to do.
The biggest mistake you can make is not being prepared, especially as it relates to how much long-term care could cost. Since the types of ailments any of us may have in the future varies greatly, the cost associated with that care will also vary. For example, if you are able to live in your home but still need assistance with some ADLs, you could hire a home health aide to come assist you. In Ohio, the median hourly rate for this service is $26.25.
However, if the type of care you need is more extensive and you need a private room in a nursing home facility, it would cost $8,459 per month. If you were to spend a year in the nursing home, it would cost a whopping $101,508—and some people spend multiple years in these types of facilities.
While we don’t have a crystal ball and cannot predict your future health, we do know that the people who are aware of the future potential costs are better able to plan for these expenses, which helps them meet their retirement goals regardless of if they need this care or not.
Another mistake we see far too often is planning for LTC incorrectly. While it might be a nice idea to assume that your spouse or children will take care of you, it often doesn’t play out that way in reality. Your spouse will likely not be able to handle the physical demands of this care, and your kids will have their own lives and responsibilities to manage. Even if they want to, they won’t be able to give you the time and attention you will need at this stage of life.
Lastly, even if you do purchase a long-term care policy, you need to understand what your policy would cover, and what it wouldn’t. You cannot simply assume that insurance will cover everything, because that may not be the case. While these policies can usually cover 100% of home healthcare expenses (as they are the most affordable), they may not be able to cover all expenses associated with assisted living and skilled nursing.
If you want to properly plan for your long-term care needs, I highly recommend you work with an independent financial advisor who can help you tailor a solution to your specific needs. There are a variety of options in the marketplace, and this isn’t a purchase that you should make without proper due diligence.
There are a few options we like to consider when evaluating policies. First, we think that a shared care rider on a traditional long-term care policy could be a great option. A shared care rider is for couples who own a policy together and allows them to share their maximum benefit amount. For instance, if a policy only allowed each spouse $250,000 of lifetime care, if one spouse hit that limit, then they would be left paying for everything above that amount out of pocket. With a shared care rider, once that spouse exceeded $250,000, they could then tap into their spouse’s lifetime benefit, allowing the couple to continue to benefit from their insurance policy. To lower your risk in the event of significant long-term care costs, consider this route.
Another option is a hybrid long-term care policy. Instead of owning a traditional long-term care policy (which only provides you a benefit if you need long-term care assistance), a hybrid policy can offer more flexibility. These types of policies combine long-term care benefits with life insurance benefits. If you end up needing long-term care help, these policies can be used for those purposes; but if you don’t need the help, they will provide a death benefit to your beneficiaries at your passing. For people who aren’t sure they’ll need to use their policy and are worried about not getting a benefit from it, this might be the solution.
In our experience, long-term care is an often overlooked area for many of the retirees we work with. And although we’ve covered a number of the essentials about long-term care here, we’ve really only scratched the surface!
If you’d like help putting a plan together that will work to cover your needs and ensure your family’s legacy, we’d love to help. To schedule an appointment, call 440-505-5751 or email jcohen@Wadvocate.com.
Jason Cohen is Chief Operating Officer and wealth advisor at Wealth Advocate Group, LLC, an independent, fee-based wealth management company. Jason has 15 years of experience and spends his days managing firm operations, including portfolio trading and analysis, training of new advisors, financial plan production, and client relationship management. Jason specializes in serving real estate professionals and other independent contractor business owners, helping them navigate their unique financial challenges, such as unpredictable cash flow and tax issues, so they can pursue financial independence and freedom from worry. Jason has a bachelor’s degree in public management from Indiana University and is a CERTIFIED FINANCIAL PLANNER® professional and believes that everyone should have access to comprehensive financial planning. He is passionate about doing his best for his clients and setting others up for success. Outside of the office, you can find Jason staying active in a variety of sports and spending time with friends and family. Learn more about Jason by connecting with him on LinkedIn.
