Broker Check

Everyone Has a Plan to Pay for Long-Term Care Expenses...But is it the Right Plan?

 J. Timothy Corle, CPC, CPFA, CFP®

President, CEO


Not me you say.  You never purchased any kind of Long-Term Care Insurance, so you don’t have a plan, right?

Wrong!

You have the same plan as most Americans -- I call it the Default plan.  The Default plan is that absent any kind of insurance to help pay for care, you pay for it, or your family pays for it.  If not in dollars, in time.  Once assets are exhausted, Medicaid…NOT Medicare, begins to help, once you are effectively broke.

Long-term care can be an emotional topic.  No one wants to think about the day when they or their loved ones may not be able to live on their own, but if you remove the emotion and look at the numbers, coming up with something better than the “Default” plan is well worth the effort.

Let’s take Tom and Heather for example.  They worked hard and built up a savings of $500,000.  When Tom was 68, he developed Alzheimer’s disease.  At first it wasn’t too bad.  Heather used some of their nest egg to hire a home care specialist to help with Tom a few hours every day.  But as his condition worsened, Tom had to go into a nursing home.  Sadly, after five years in the facility, he died.  Heather, now 72, is very healthy for her age, but unfortunately must work full time because her husband’s need for long term care drained most of their retirement savings.

Tom and Heather’s story is not unique, but you can keep that from happening to you by developing a plan, and that plan should include long term care insurance.

Insurance is designed to transfer a portion of the financial risk of loss to an insurance company.  Think about it, you have insurance on your home to protect against loss from a fire, insurance on your car to protect against being totaled in an accident, health insurance to pay for cost of hospitalization, but none of those things come with higher odds than needing long term care.

One of the biggest financial risks to a retirement plan is the reality that you or a close relative will need financial assistance due long-term care needs.

When talking about finances, I believe it is always best to remove the emotion.  Emotion can easily cloud your judgement.  If you were able to save up enough money to retire, you likely did not do that by accident, it took discipline and sacrifice.  A little additional sacrifice in the form of insurance premium to help preserve your nest egg is usually a wise choice.

According to the Genworth Cost of Care resource, the monthly median costs in the Philadelphia area in 2020 were $11,285 per month for a semi-private nursing home room, $5,550 for a private one bedroom in an assisted living facility, and $4,767 per month for in-home care.

I advise people to look at purchasing some form of long-term care insurance when they turn 50, or as soon thereafter as possible.  There are several types of policy options, they have adjustable features to match your budget.  Like buying a car, you can get all the extras, and pay for them, or you can buy a base model that costs less but still provides decent transportation.  The main reason to purchase the insurance in your 50’s is simple, it provides you with the most flexibility and premium options.  The longer you wait the higher the premiums get, and the older you get the greater the possibility health conditions develop that could increase the cost even more, if they don’t disqualify you altogether.

And if that’s not compelling enough, the state of Washington recently passed the Long-Term Care Trust Act which will impose a 0.58% payroll tax effective 1/1/2022.  While this does not impact us, many states are taking notice and currently there are 13 other states looking to do the same thing.  Those who already have some form of long-term care insurance may be exempt from the additional tax.  What we have seen in Washington is that insurance carriers have suddenly suspended issuing new policies there, and the same is likely to be true in all the states that may put a similar law in place. 

Having your own insurance gives you more options, both now and in the long run when you are likely to need care, and I believe we are all better off planning on our own rather than turning the control over to the state.

Remember, retirement planning is not a one-time event, it is an ongoing process, and planning for long-term care expenses is a vital part of the process.  If you are concerned insurance may be too expensive you need to ask yourself….If I can’t pay the premiums now, how will I afford to pay for the care later?  It may be the type of thing you can’t afford to be without.

There are many types and ways to fund a long-term care expense plan; contact me at 610-251-0670 to help you evaluate your options.