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Planning For Long-Term Care

I am often asked, “Jack, how do I start the conversation about long-term care with my loved ones?” Most families don’t have a plan to cover long-term care expenses should they arise. Usually it is because it has never been talked about. Essentially, you have a clean slate. 

A casual sit-down before, during or after a nice meal works. But no matter what the setting, a brief intro into the conversation is the way to start and it will evolve naturally from there. Regardless of whether you decide to transfer the risk to an insurance company, or assume the risk and self-insure, you must talk to your loved ones about putting a plan in place and understanding how it will work.

Because people are living longer, the need for long-term care services is increasing.  According to the National Center for Health Statistics, over 70 percent of individuals aged 65 and over will require long-term care services. Combined with the fact that the average monthly cost for a private room in a nursing home is approximately $8,000, you can see why this would have a significant impact on both a retirement plan and an estate plan.

Alternatives

Self-insuring – using your own money and assuming all of the risk – is an option, but you have to understand the risk that you are assuming. Run the numbers in the context of a comprehensive retirement analysis and see what the impact will be on your retirement assets if you spend five years in a nursing home. You’ll be shocked.  

Home care is another way to reduce the overall cost of long-term care, but you need to be in a home that is livable for you as you become less mobile and unable to perform the normal activities of daily living. If you live in a Pittsburgh home with three flights of stairs, and another set of stairs to get to those stairs, then you need to start thinking about downsizing. Whether an apartment, condo, patio home or ranch home, first-floor living will allow you to live out your golden years safely and comfortably in your own home.  

If you choose to transfer the risk to an insurance company – the real reason why people should use insurance – long-term care insurance guarantees you will have access to a range of care services and options to help preserve your assets. However, it can be expensive, depending on various circumstances. So, before you purchase a policy, we recommend determining if it makes sense for you in the context of a comprehensive financial plan. 

Furthermore, there are two ways to insure against long-term care expenses:

1. Traditional long-term care insurance provides for a stated amount of coverage for a stated period of time. Premiums are based on age, sex, and health history, among other things. The traditional policies tend to be the most comprehensive and can account for inflation but do not maintain any residual value.  

2. Purchasing a long-term care rider on a life insurance policy or annuity, sometimes referred to as a “hybrid” policy. Granted, the overall coverage may be less, but the other aspects of the policy can provide benefits that you can use or your heirs can use in the future. In some instances, there are less stringent underwriting procedures or none at all. 

Of course, there are pros and cons to any approach, and that’s why having a plan is vital when deciding what is best for each individual’s situation. 

Please plan on attending my upcoming seminar to learn more, on Thursday, October 24th at 5:30 in the Hefren-Tillotson Greensburg Office, I would be happy to answer your questions and look forward to meeting you.

DISCLAIMER: Past performance does not predict future results. This report is based on data obtained from sources we believe to be reliable. Hefren-Tillotson does not, nor any other party, guarantee the accuracy or completeness of this report or make any warranties regarding results obtained from its usage. All opinions and estimates included in this report constitute the firms judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation to buy or sell the securities herein mentioned.

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Hefren-Tillotson Inc. is a leading diversified financial services firm providing investment and retirement plan management and comprehensive, financial planning through MASTERPLAN® for individuals and businesses. The firm’s wealth management services are administered by Certified Financial Planner (CFP) professionals, Chartered Financial Analyst (CFA) Charter holders, attorneys, Chartered Life Underwriters, and CPA/PFS’s. Hefren-Tillotson offers corporate services including 401(k) retirement planning, executive financial counseling, fiduciary reviews and workplace financial planning seminars. Founded in 1948, the firm is headquartered in Pittsburgh and has offices located in Pittsburgh, Butler, Greensburg, North Hills, and South Hills. MEMBER SIPC.