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In this episode of Ready for Retirement, we’re talking about long-term care insurance. Are you scared to spend your hard-earned money for fear that you’ll need it for future nursing home costs? Tune in to find out whether you should buy long-term care insurance!
Questions Answered:
- Even if I have income that exceeds my expenses, how do I protect myself and my spouse against costly long-term care events?
- What are the different types of long-term care?
- How can I self-fund long-term care?
Episode Timeline:
04:57 – Statistics
07:25 – Types of long-term care & Costs
17:33 – How to know if you should get long-term care insurance & Planning Points to Consider
23:27 – How to self-fund long-term care
28:27 – Summary of key takeaways
Key Takeaways:
- What are the different types of long-term care?
- Long-term care can be as basic as a family member or spouse taking care of you or it could come in the form of an assisted living or skilled nursing facility.
- Unpaid long-term care – Someone that helps you with bathing, dressing, taking medications, supervising you, etc. Oftentimes, it’s family or friends supporting you.
- Paid Homemaker Service – Offers practical long-term assistance with routine household tasks at your own home. Use www.genworth.com to find out how much these services could cost you in your area.
- Adult Day Healthcare – An option for seniors who still want to live at home, but go to an adult daycare facility for assistance with eating, mental stimulation, exercise, etc. This allows breaks for both the caregiver and care recipient. These are also great for people with some degree of cognitive impairment.
- Assisted Living Facility – You’re no longer living at home. You’d live at the facility full-time and receive full-time personalized care in a residential setting.
- Skilled Nursing Facility – These facilities are similar to assisted living homes, but they’re ideal for people with specific healthcare needs, as nurses are available 24/7. These are generally the most expensive option, ranging upwards of $10k-$14k/month (data from San Diego). The median stay in a nursing home facility is ~5 months.
- Notable Statistics
- Someone turning 65 today has almost a 70% chance of needing some type of long-term care services and support in their remaining years.
- On average, women need long-term care for 3.7 years and men need it for 2.2 years.
- 1/3 of today’s 65 year olds may never need long-term care support, but 20% will need it for longer than 5 years.
- In 2017, the average lifetime cost of long-term care was $172,000.
- How to Fund Long-term Care
- Do a present value calculation. What amount would you need to invest or pull from your portfolio today, growing at some rate of return, to give you the amount you need to self-fund worst-case scenario long-term care costs?
- Could selling your home or other assets cover long-term care costs? (Keep in mind inflation of both your assets and of long-term care!)
- Planning Points to Consider
- Whether you need long-term care insurance or not, if you don’t have a plan around it, you might be uncertain or anxious about your spending and whether you will be able to afford long-term care in the future.
- Although these long-term care services are expensive, they’re usually not piled on top of your normal expenses. For example, once someone goes to live at an assisted living home, they’re usually not paying for travel, a home mortgage, or property taxes anymore. Thus, some of these costs replace expenses you had prior to needing long-term care.
- The goal of insurance is to protect against what could go wrong, so you should look at the worst-case scenario.
- When you buy long-term care insurance, that policy won’t pay you forever… there will be a cap. The policy will pay a fix amount per day for a fixed period of time. If you run up a long-term care bill of $500,000 (an extreme scenario), your insurance might not cover all those expenses.
- Summary – How to protect against long-term care costs?
- To protect against long-term care costs, buy long-term care insurance. A good rule of thumb is buying insurance anywhere between 55-62. The earlier you do it, the less expensive it’ll be, but the longer you’ll be paying premiums.
- Look at your income sources. With strong social security, pension income, rental income, etc., it may be sufficient to cover costs. Keep in mind inflation! If one spouse passes away, become aware of what that will do to your income sources.
- Self-fund with investments. What portion to you need for spending today versus the future to fund long-term care? The benefit of this is that if you don’t need long-term care, you can leverage your assets however you like.
- Do you use your home? Could you sell your home to fund long-term care, if needed?
- Take good care of yourself!
Resources Mentioned:
The Administration for Community Living: www.acl.gov/ltc
Genworth: www.genworth.com
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James-
Great podcast on long term care and the biggest dilemma for many retirees. If you were to self fund your Long Term Care as you discussed; what is the best account type to hold that money; assuming you had taxable and Roth IRA’s.
I believe that long term care is tax deductible, so if you needed long term care the best place would be in a taxable IRA. But what if you never needed the care and the $200,000 grows to over a million dollars at your death, then you end up leaving your heirs a huge tax bill versus if you had left that $200,000 in a Roth account to grow.
Love to hear your thoughts.