Pennies For Dollars

Try to think past today. It’s hard to do because we are so focused on work, family, politics and social issues that take up all of our available time. But that can leave the future unplanned.

A pretty common concern today is outliving money planned for retirement. Do you think you will live a long life?

Check out this life expectancy calculator. I did.* Then think about whether or not you might need some assistance as you age.

Traditionally in our country, long-term care has been provided at home by family members – wives, daughters and daughters-in law. But our society has changed significantly over the past two or three generations.

Today there are more women in the workforce. We have high divorce rates. We’re having smaller families and families are spread geographically all over the country.

Relying on family members to provide care is not the option it once was and that makes being able to pay for care more important than ever before.

Long-term care could really crimp retirement plans

A long-term care event could really put a dent in the money planned for retirement years. How big a dent? Well it all depends.

Why will you need care? Will you need non-medical or medical care? How long will you need care? Less than a year? More than a year? More than five years?

Where will you receive care? Home? Assisted living? Nursing home?

According to the Genworth 2018 Cost of Care Survey, the annual median cost of non-medical home care in the country is $50,336, up an average of 3% over the past five years.

Assisted living is now $48,000 annually and a private room in a nursing home is $100,375.

Twenty years median annual costs will have increased to $90,912 for home care, $86,693 for assisted living and $181,288 for nursing home care.

More will need long-term care than not. The government projects that by age 65 we have a 70% risk of experiencing a long-term care in our remaining years. And the risk increases with age.

What’s an event? Well, it could be help recovering from knee replacement surgery or a stroke which could last less than one year. About 40% of long-term care insurance claims last less than one year.

Dementia is the #1 cause of long-term care insurance claims

The majority of claims last longer. Claims history indicates that 60% of claims last longer than one year and the average duration of those claims is 4.3 years.

About 18% last longer than five years and those tend to be associated with dementia.

If you think the government projections are unrealistic check out the Alzheimer’s Association website and its projections for new cases. Every 66 seconds …

For most of us there are really just three ways to fund long-term care: self-fund, transfer the risk to an insurance company or qualify for Medicaid. We often hear that insurance is too expensive. Our view is that self-funding and Medicaid are too expensive.

Consider two factors

When we work with clients we ask them to consider two factors:

  1. How much risk do you need to offset to an insurance company? In other words, how much of the cost of your care could you afford to pay yourself? Is that 25%? Then you’d look to insure 75% of the risk. If 50% then you’d insure at 50% of the cost of care.
  2. What is an affordable premium? Can you afford $100 per month in premium? $200? $500? The insurance premium needs to be affordable.

A guideline from the National Association of Insurance Commissioners is that a long-term care insurance premium should not exceed 7% of annual income.

If you’re in your forties and making good money that could be over-insuring. If you’re in your seventies and on a fixed income that could be unaffordable – unless kids are chipping in or paying the premiums. That’s why we ask clients to define a premium budget.

In a recent study by the Health Insurance Association of America only about 31% of those purchasing long-term care insurance did so to protect assets.

The remaining 69% majority did so for emotional reasons like being sure they could afford quality care and not wanting to burden family.

The new norm is some insurance is better than none.

* I could live to be 106! Scary thought. I’m very glad that I have long-term care insurance. At 106, I know I’ll need help!