As you picture your retirement, it’s likely you haven’t considered the possibility of losing your ability to perform everyday tasks. The hard truth is that later in life many of us will require assistance with activities such as meal preparation, transportation, and dressing. Long-term care is the option that provides support for these essential tasks.
According to recent studies, up to 70% of people will need these services at some point in their lives. Given the likelihood and potentially high costs associated with long-term care, we believe that incorporating a plan for these expenses into your retirement plan is critical to your financial well-being.
Today let’s delve into the definition of long-term care, and highlight some typical oversights when exploring viable alternatives that can help you feel confident you’ll have adequate coverage in the event you require assistance.
What Is Long-Term Care?
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.
3 Long-Term Care Mistakes
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 $28.11.
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 $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.
How to Cover Your Long-Term Care Needs
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.
We Can Help Plan Your Future
In our years of working in the financial industry, one thing we’ve noticed is that many retirees tend to overlook the importance of long-term care planning. While we’ve touched on some key aspects in this article, there’s still much to consider. At Anderson Financial Strategies, we help our clients develop a comprehensive plan that addresses their specific needs related to long-term care. If you would like to explore our services for your family or business, please call us at 855-237-4545 to schedule an executive briefing to discuss your goals.
Shon Anderson is president and chief wealth strategist at Anderson Financial Strategies, LLC with over 15 years of experience. As a fiduciary, Shon’s mission is to provide his clients with quality financial expertise along with rapidly responsive service through an honest relationship. He specializes in providing family office-style services to help his clients organize and focus their financial life. Shon graduated from Wright State University with a bachelor’s degree in financial services and an MBA in finance. He is a CERTIFIED FINANCIAL PLANNER™ practitioner and holds the Chartered Financial Analyst® (CFA®) certification. His insights have been quoted in leading financial news publications such as CNBC, Yahoo Finance, Fox Business, Consumer Reports, Forbes, Bankrate.com, Investment News, and Kiplinger. Shon serves as an adjunct professor teaching personal finance courses at Wright State University, leads CFP® exam review courses for Keir Educational Resources, and is president of the CFA Society Dayton. Shon and his wife, Jessica, reside in Sugarcreek Township, Ohio, and are blessed with triplet daughters, Elizabeth, Bridgette, and Alexandra, along with their son, Jacob, and dog, Jack. Over the years, Shon has been involved in several volunteer organizations including the Wright State chapter of Delta Tau Delta as an alumni advisor and was a Big Brother in the Big Brothers/Big Sisters program. To learn more about Shon, connect with him on LinkedIn.