In a recent survey I did with my clients and friends on retirement planning, I discovered that fewer than 10 percent of my mostly Indian friends had done any sort of long-term care planning. I found that to be really fascinating.
I believe it’s because we come from a culture where parents live with their children in retirement and the children look after their parents. It is important to realize that things in America are a bit different and our children may not be able to take care of us, even if they want to. If we look at most households today, we see both spouses working and many times they have to travel for work. We are also seeing a rise in interracial marriages and we don’t know who our children will marry and what cultural values their spouses will have.
Long-term care planning is an important part of retirement planning. It is vital to plan for costs associated with healthcare expenses in the event we are unable to care for ourselves.
There are a number of ways in which long-term care is provided. The most common is home healthcare, in which someone comes to your house on a regular basis and assists you with your daily living activities such as eating, bathing, going to the bathroom, dressing and physical mobility in getting from one place to another.
The other options are assisted living or a nursing home, both of which provide higher levels of assistance on a more continual basis. Medicare, however, does not cover many of these costs, with the result being that persons needing this kind of care can expect huge expenses, a prospect especially difficult during retirement.
Many people start out by paying for their care from their savings and end up impoverished and on Medicaid. If one spouse needs the care – typically the husband is the first — the other spouse is often left with very little financial resources.
Having Medicaid cover costs also means giving up freedom of choice. Most facilities limit the number of beds available to Medicaid recipients because the facility is not reimbursed at a rate as high as from their non-Medicaid residents. And Medicaid recipients may not be able to choose the location of the facility and, most likely, a Medicaid recipient is not going to have a private room.
AVERAGE COSTS FOR LONG-TERM CARE SERVICES
The bottom line is that it is expensive! Here are some average costs for various services on a national basis, courtesy of Genworth Life Insurance Company, from the 2015 Cost of Care Survey. Please keep in mind these are average costs around the United States. The costs in your state could be higher or lower based on many variables, including the location, quality and experience of the service providers.
Home health aide services:
Adult day care:
Nursing home (semiprivate):
Nursing home (private room):
Certain conditions such as Alzheimer’s disease, which can require many years of care, add to the expense. President Ronald Reagan, who was diagnosed with
Alzheimer’s in 1994, died in 2004 at age 93.
So what are some of your options?
Long Term Care Insurance: One of the easiest ways to provide for potential long-term care expenses is with a long-term care insurance policy, providing you are healthy enough to qualify for coverage and can afford the premiums. This is like buying a bucket of money that can be utilized for potential healthcare expenses. You will have a choice of daily benefit amounts and a waiting period before benefits are triggered so if you want to rely on your savings for the first few months or a year, you have that option and it will help reduce the premiums. Keep in mind that your eligibility for benefits payout depends upon your inability to do two or more of the daily living activities mentioned above.
You also will have an option on how long you want the benefits paid: two years, five years – or longer. There are also optional inflation protection riders. This could be important: if you purchased your policy in your 50s and didn’t use the benefits until you were in your 80s, you would want your daily benefits to also rise with inflation. There are also discounts available for spouses who have joint policies.
Life Insurance and Long Term Care Benefits: There are many people who feel they are not going to use the benefits but may have set aside some cash just in case. Rather than leave your funds in a low-interest bearing savings account, you could make a lump sum deposit to purchase a life insurance policy with long term care benefits. If you and your spouse need the benefits, you will have it. If you don’t need the benefits, the money will pass on to your beneficiaries as life insurance proceeds which are also income tax-free.
There are also permanent life insurance policies, such as whole life and indexed universal life that may also offer optional long term care benefits which are worth considering. Speak to your agent or financial advisor about your options.
Medicaid Planning: Unfortunately, there may be some people who do not have the financial resources to buy insurance or may be uninsurable and know that they may have to rely on Medicaid. There are steps that you can take to help shelter some of your assets from a potential Medicaid spend-down. Medicaid requires people to have limited assets and income in order to qualify. When you apply, a snapshot is taken of your current finances. If your assets and income exceed your state’s eligibility amounts, you are considered ineligible until you have spent your current assets. There is also a five-year lookback on gifts you give — made from the time of application — so it pays to plan well in advance.
There are also certain qualified long-term care policies that can give you tax deductions for a portion or all your premiums based on your age and premiums. And some states, such as New York, also offer partnership long-term care policies that work with Medicaid to allow you to keep some or all of your assets from a Medicaid spend-down.
Since Medicaid rules vary from state to state and can be complex, speak with qualified advisors who understand the rules in your state and can guide you appropriately.
Rajesh Jyotishi, a financial planner from Atlanta, Georgia, is the author of “The Money Talk-Retirement and Estate Planning for Indian Americans.” He is also a registered representative of Dempsey Lord Smith, LLC. Member of FINRA/SIPC. Advisory services are offered through Dempsey Lord Smith, LLC.