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The Forgotten Retirement Expense

Like a lot of things in financial services, part of our ability to help clients be successful is to start the conversation. This article is an attempt to start the conversation for you on long-term care.

No one likes to think about how to prepare for the possibility of needing help with daily life. When meeting with most clients, one of their least favorite things to talk about is when they might need help with long term care related issues such as bathing, eating and being able to perform their basic daily needs. It’s a shame this topic is so difficult to discuss because a 2015 Medicare study suggests at least 70% of people over age 65 will need long-term care services at some point in their lives. How could it be that something with such a high likelihood of happening goes completely unplanned for? Like a lot of things in financial services, part of our ability to help clients be successful is to start the conversation. This article is an attempt to start the conversation for you on long-term care.

Get educated

I encourage everyone to become educated in long-term care. Unfortunately, people don’t get this education unless they experience it firsthand with a family member or loved one. The lesson they often learn from is seeing how devastating long-term care can be to your total financial picture when you haven’t saved or planned properly. Unfortunately, there’s no central resource to get a great understanding of the programs and planning that families endure when preparing for a long-term care crisis. Instead, people come into the office after going through an experience with their parents or loved one now understanding the tremendous financial undertaking that is long-term care.

Preparing for a long-term care situation

Step 1. There are some people who are eligible for special programs like Veterans Aid. If you or your spouse was in the Armed Forces, we encourage you to look into any long-term care benefits that may be available to you. Here is a website you can go to so that you can learn more.

Step 2. Do a thorough review of all of your estate planning documents. What you really want to do here is make sure you understand what your documents say. I can’t tell you how often people come in with their very expensive, customized estate planning documents and they have no clue what’s in them. You need to understand what your estate plan documents say so that your wishes can be honored in the event that you’re incapacitated or unable to manage your own finances. There’s a lot of stuff in the planning process to understand and you want to be familiar with it so you can prepare your family or loved ones who will be executing the plan. They need to know what they’re stepping into and what your situation looks like.

Step 3. You’ve got to get some kind of long-term care plan in place. Without the formal structure of having a plan, it’s hard to gain an understanding of how your finances might look should the unfortunate happen. It’s impossible to navigate what’s going to happen to your finances should you have to pay for long-term care and there’s no plan in place.

Understanding your options

There aren’t millions of options on how you’re going to prepare yourself financially for long-term care needs and costs. There used to be a period of time when there were a number of long-term care insurance carriers with a multitude of insurance options to choose from. For the most part, the days of having unlimited choices are behind us. The number of large insurance companies still participating in the long-term care space has dwindled down to just four or five. What many insurance carriers found in the past is that they didn’t charge enough on those earlier long term care policies to help protect the insurance company from people collecting on their benefits. With that said, there are still a few viable choices for how you can protect yourself and your family should the need for additional medical coverage come later in life.

Option 1:  Traditional long-term care coverage. Some of the bigger players that are still in the long-term care business include companies such as GenWorth, Hancock, TransAmerica and MetLife. They all offer some form of long-term care coverage. Essentially, what this means is that typically after 90 days, should you have the inability to perform two out of five common core tasks and require support, you should be able to start collecting your benefits. The benefits are typically expressed in how much these companies will pay per day. For example, $150 to $200 a day of coverage. In some cases, these policies will offer cost of living adjustments that increase your benefits over time. Finally, in most every case, these policies are quote unquote, use it or lose it. This means that you could end up paying premiums for these policies for life and if you never need long-term care coverage, you would die before ever receiving any benefits.  These types of Long Term Care policies were about the only option for a long time, and we still come across an old policy or see a quote on a new one of these from time to time. They work for some, but frankly they aren’t our favorite tool for most of our clients.

Option 2:  Life insurance policies with long-term care benefits included. Not all life insurance policies are created equal. As time goes on, we find ourselves looking at life insurance policies where we can use the death benefit to help pay long-term care expenses while our clients are still alive. There are many different types of life insurance policies that offer this type of service – in fact, too many to mention in this article. Nonetheless, we like using these policies because we know at some point our clients will be able to use the money they pay into them. Scenarios include:

  • Taking distributions out during their lifetimes tax-free
  • Using the money while living for long-term care benefits
  • Passing the money on at death

Option 3: Save enough money so that you are completely self-insured. For those fortunate enough to save a lot of money during their working years, they may not need any life insurance or long-term care insurance to provide long-term care benefits for them or their families.

Option 4:  Have a big enough family that they can take care of you during times of need or crisis.  This one is self-explanatory… right?

Sooner rather than later

No matter which of the above plans works best for you, we suggest you start thinking about this sooner rather than later. We say this because if you’re going to use any kind of insurance to help prepare for your long-term care needs, it’s always cheaper to buy these kinds of policies when you’re younger and healthier. However, what works best for you can only be determined by your specific situation. We encourage everyone to work with a financial advisor to identify the best approach for your long-term care planning needs. Hopefully, after reading this article, you will be more motivated and more prepared to have the difficult conversation about how to protect yourself.

Michael Carlin, AIF

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