What To Consider About Long-Term Care
Long-term care and retirement planning work together to ensure that when you secure your retirement, you’ve also accounted for the possibility of landing in a long-term care situation. Many people know that they need to think about it, but they push the concept aside because it’s expensive.
A few of the questions clients come to us with are:
- Should you self-insure?
- What type of insurance should you get?
However, before we dive into these questions and more, you also need to consider that a very high percentage of couples, around 80%, will have one who will go into a long-term care situation.
The individuals who do enter some form of long-term care may not need extensive care or stay in a care situation for an extended period. On average, a person will spend 2 to 2 and a half years in long-term care.
Transferring Risk with Insurance
Long-term care is expensive. However, you need to determine what may happen and the risks of having insurance versus not having insurance in place. Once we have an idea of what the costs of long-term care will be, then it’s time to evaluate if:
- Long-term care insurance is the best way to mitigate risks
- You have more than enough in retirement funds to pay for care out of pocket
Understanding some of the basic numbers is an excellent way to gauge the risk of long-term care and what these actual risks mean to your future finances.
Nursing Home Care and Assisted Living
Every year, we’re provided with basic numbers on how much nursing homes and assisted living facilities will cost you. We receive average monthly costs by state, but the national average monthly costs in 2021 are:
- $8,517 for nursing home care
- $4,051 for assisted living
Of course, these are averages, so the cost may be higher or lower in your area. For example, we’re in North Carolina, and the average monthly costs for care in our state in 2021 are:
- $8,060 for nursing home care
- $3,800 for assisted living
If you live in a state like California, you can expect nursing home care to cost $11,000 and assisted living to cost $5,000.
In all cases, the costs for care are very high.
Additionally, due to rising inflation, a 60-year-old can expect these care costs to double in 20 years. So, if you hit 80 in 20 years from now, you can expect the national average monthly cost of care to be $16,000 – $17,000 per month.
Inflation rises about 4% per year, so it’s easy to see why long-term care and retirement planning must be considered together.
If you must stay in one of these facilities for four years, you’re looking at spending $830,000 on the low end for care.
What are Your Options to Afford $830,000 in Care Costs?
Most people we talk to don’t have $830,000 sitting around waiting for their potential long-term care. However, you do have a few options here:
If you self-insure, what this really means is that you have enough money sitting around at this point in retirement that you can pay for your long-term care costs. You might be leaving less to your family by self-insuring, but your nursing home or assisted living costs will be funded by you.
Self-funding offers many options, such as:
- Take out $1 million in life insurance so that when you do pass away, your self-funding doesn’t take away from the inheritance you leave behind.
- Take out traditional, long-term care insurance.
If you want to secure your retirement and don’t want to self-fund your care costs, you can take out long-term care insurance. However, many people have concerns about this type of insurance because you’re paying for something you may never use.
Additionally, and we’re seeing this a lot in recent years, premiums are skyrocketing.
Some clients of ours have had their premiums double in a year.
Hybrid policies do exist, which may be something to consider if you’re planning your retirement. A few of the hybrid policies that we’re talking about are:
- Annuity / Long-term Care. Place $100,000 into the annuity, and $300,000 goes into a long-term care policy. In this scenario, the money in the annuity will gain some interest, and if you die without going into care, that money will go to your beneficiaries. You can also take money out of the annuity if you need it without any penalties.
- Life Insurance Hybrid. A hybrid life insurance policy often has additional features that are of interest to people. For example, you can put a lump sum of money into the account with 100% liquidity and an interest rate of 2% to 4%. The long-term care benefit comes out of the potential life insurance money. If you die without touching this money, your heirs will receive a multiplier of what you put into the policy. Premium options also exist to fund the policy. In this scenario, you’ll either leave money behind in the life insurance or through long-term care benefits.
We know that this is a lot to digest and understand in one sitting. When we work with clients one-on-one, we put these figures into the life insurance analyzer to have a clearer picture of self-funding and available insurance options.
Facts and figures give direction for people who are planning their retirement.
If you have a plan in place, we run the numbers to see what your retirement looks like at 70, 80, 90 and beyond. Then, using what-if scenarios, we can show you what retirement looks like if you use long-term care benefits, or you stay healthy until the day that you die.
Using the right approach, we can see the possibilities of self-insuring and what your heirs will have left when you die.
We encourage you to run figures, sit down with a certified financial planner and even schedule a 15-minute phone conversation with us.