Understanding the Financial Risk of Long-Term Care in Retirement
When considering risk to an investment portfolio in retirement, most think of stock market risk. That risk can be mitigated with the appropriate investment strategy. However, long-term care is another major risk that can have a serious impact on your financial future, and it is one many people don’t plan for.
According to the American Council on Aging, the nationwide average daily cost for a shared room at a skilled nursing facility is $305 and the average annual cost is a whopping $111,325. The range across the country goes from a low of approximately $175/day in parts of Texas and Louisiana to approximately $1,000/day in parts of Alaska and California with the Pittsburgh area falling around $363/day for a shared room and $394/day for a private room. These costs can be detrimental to even the healthiest portfolio.
Why Medicare Isn’t Enough for Long-Term Care
If you’re thinking about long-term care, you are probably concerned about being able to afford it. If you have investigated Medicare coverage, you would come to realize you cannot depend on this program for various reasons. Medicare is designed only for short-term hospital stays while the average stay in a nursing home is 2.5 years for people over 65. Under Medicare, the deductible you pay is as high as $382 for every day you are in the hospital after the initial 90-day coverage period. Coverage completely lapses after 150 days.
Exploring Your Long-Term Care Funding Options
So, what are your options if you face the possibility of needing long-term care? One, you can rely on family members and friends for help. Two, you can self-insure and possibly deplete the estate you have spent so many years building. Or three, you can transfer the financial risk of long-term care costs to an insurance company.
The Importance of Proactive Long-Term Care Planning
This is where proactive long-term health care planning becomes essential. Rising health care costs and longer life expectancies mean that long-term care can affect more than your income. It can disrupt estate plans and legacy goals. By building care planning into your broader financial strategy, you help protect your assets and preserve your wishes.
RELATED: Read our article about social security planning, specifically when and how to claim benefits.
What to Ask When Shopping for Long-Term Care Insurance
The following are some questions to ask when shopping for a long-term care policy:
- What services are covered (skilled care, custodial care, memory care, home health care)?
- How much does the policy cover per day?
- How many days do you have to wait for the benefit to begin?
- How long will benefits last?
- What is the maximum lifetime benefit?
- Are pre-existing conditions covered, and if not, how long must you wait before they are?
- What does the policy cost?
Understanding Hybrid Long-Term Care Insurance Options
Some insurance companies now offer hybrid long-term care policies that combine life insurance or annuities with long-term care benefits. These can be more affordable than traditional coverage and may offer additional flexibility. For example, if you don’t use the long-term care benefit, some policies allow for a return of premiums or provide a death benefit, helping you meet both care and legacy planning goals.
Why You Should Plan Now for Long-Term Care
So, you’re ready to explore your options, but you think now is not a good time to act. In fact, the time to be considering long-term care is NOW – when you are healthy. As with many insurance policies, most pre-existing conditions are not covered. This means your coverage must be in place before the need for it arises. Also, consider premiums increase with age. You may be surprised to learn that the difference between premiums for a 50-year-old and a 65-year-old can easily be 50%.
Talk to a Pittsburgh Financial Advisor About Long-Term Care
At Bill Few Associates, our Pittsburgh financial advisors help clients evaluate whether long-term care insurance fits into their overall retirement and estate planning strategies. If preserving your independence and protecting your lifetime savings is a priority, we can help you explore options that support long-term peace of mind. Contact us today.
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