Likely, similar to most people, when you are planning for retirement, the scenes you envision are hopeful, goal-oriented, idyllic. Your retirement plan no doubt consists of figuring out a financial strategy that ensures your investments, pensions, and social security benefits work together to create a sustainable, comfortable lifestyle for the remainder of your life.
Likely, similar to most people, when you are planning for retirement, the scenes you envision don’t include suffering from a chronic illness, disability, or cognitive impairment. While not enjoyable to reflect on, these potentialities are important to consider in the sphere of your retirement plan, as costs associated with long-term care can be significant.
Without proper planning, long-term care costs can quickly drain your retirement assets, creating a situation where you’re faced with sudden drop in quality of life or where the money you’ve saved to pass on to your loved ones can quickly disappear. How can you safeguard yourself and your assets in such a case?
In this article, we’ll explore an important feature to consider as part of your retirement plan as it relates to protecting yourself from these unexpected, potentially significant costs–long-term care (LTC) insurance. How can this special type of life insurance safeguard the assets you’ve been savings for years with a view to a sustainable, comfortable retirement? How does LTC insurance work? When is the best time to consider adding LTC insurance as a feature in your retirement plan?
The Growing Need for Long-Term Care
As mentioned above, “sick” or “disabled” probably doesn’t make the list of your retirement goals. The reality though, sad as it is, is that nearly 70% of Americans 65 years of age or older will eventually require some form of long-term care. This statistic from the U.S. Department of Health and Human Services relates long-term care to needs such as assistance with daily activities (e.g., bathing, dressing, cooking, etc.) to even more intensive care such as that provided for in assisted living and nursing facilities. These needs could stem from chronic illnesses, disabilities, or degenerative cognitive diseases.
If proper planning involves expecting the unexpected, in light of the above numbers, how much more so should you expect the expected.
The Risk of Draining Retirement Savings
So what exactly are the potential costs of long-term care? According to a 2023 survey by Genworth, these are the estimated average costs for different features of long-term care:
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In-home care (homemaker services or home health aide): $35-$40/hr
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Assisted living: $65,000-$105,000/yr, depending on location
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Nursing home (private room): $110,000-$175,000/yr, depending on location.
Considering the likelihood that at least one of these features of LTC will be needed, you can see that no matter the need and no matter the term, the financial burden can be severe.
But, what about Medicaid? For those who qualify, Medicaid can assist with long-term care expenses. However, many won’t be eligible due to Income & Asset Eligibility limits. Here’s a quick example. In New Hampshire, what’re the financial requirements in order to receive the highest level of LTC assistance that Medicaid offers (“Institutional Long-Term Care”)? For each individual applying for Medicaid, your monthly income would need to be under $2,830/mo and your total assets couldn’t be more than $2,500 (not counting your home).*
For the vast majority of those who’ve saved up a decent nest egg to enjoy a comfortable retirement, they’ll be well out of these eligibility limits. Therefore, these costs will be out-of-pocket expenses for those who don’t qualify. This means dipping into your savings, 401(k), IRAs, selling your lake cottage, etc.
The drastic reduction of retirement savings likely means a drastic reduction in quality of life during retirement, a drastic reduction in future financial security, and a drastic reduction in any funds intended to be passed down to your heirs.
How Long-Term Care Insurance Works
The principal purpose of this special type of life insurance is to cover expenses that Medicaid, Medicare, and health insurance don’t. Different insurance companies offer different features with their policies. However, most all LTC insurance policies will pay for in-home care, nursing homes or assisted living, and caregiver support. Many policies also help pay for hospice, terminal illness expenses, and adult daycare.
Just like any other form of insurance, you pay premiums to the LTC insurance provider and in turn, they provide financial coverage when you meet the criteria for what constitutes long-term care needs. Typically, this criteria is related to your capacity to fulfill ADLs (activities of daily living). What the actual cost of that premium is will depend on a variety of factors, such as:
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Specific policy features (for most policies, certain features can be added, such as the option to pass on LTC benefits to a spouse in the event of the insured’s passing)
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Age
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Health status
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Pre-existing medical conditions.
There are also hybrid policies available which combine the death benefit of a standard term life insurance policy with the added feature of providing coverage in the event certain long-term care or terminal illness needs come about. If those costs arise, you’re able to use some or all of that death benefit to cover those expenses. If those needs don’t arise, the death benefit is paid out per normal to your beneficiaries.
When to Purchase Long-Term Care Insurance
Two of the primary factors that affect the cost of LTC insurance were mentioned just above–age and health status. That means long-term care insurance is best purchased well before those needs arise. Commonly, individuals will begin exploring LTC insurance options while they are in their 50s and in relatively good health.
Not only can waiting too long have the detrimental effect of draining your retirement savings as already discussed, but it could also mean facing significantly higher premium costs or even disqualification from coverage altogether.
Conclusion: A Crucial Retirement Planning Consideration
By protecting your retirement savings and alleviating the burden of family members, long-term care insurance can allow you to confidently continue that idyllic vision of your golden years.
Why not find out if LTC insurance is affordable for you and could play an important role in your future financial security? Did you know we offer LTC quotes free of charge? The little bit of time and effort required to get an expert opinion could be an investment with a major payoff if you end up one of the 70% of age 65+ Americans who will face some form of LTC expense in their lifetime.
If you’d like to find out how LTC insurance would fit into your retirement plan or would simply like an LTC Insurance quote, click the button below for a complimentary consultation. We’ll assess your finances with a view to retirement and give you a professional opinion on whether or not LTC insurance is both feasible and recommended in the light of your age, goals, and financial position.
