The demand for long term care is growing, and with increased demand comes higher costs.
A few years of nursing care, assisted living or a part-time home aide can significantly disrupt a client’s portfolio — especially if they haven’t planned far in advance.
Despite the risks, many retirees haven’t planned at all, and just over 8 million Americans hold long-term care insurance policies.
Often, pervasive misconceptions can keep people from planning or seeking counsel on long term care funding. If you can clear up this confusion among your clients, you’ll put them in a far better position to plan their investments, savings vehicles and drawdown strategies. You may even help them avoid a few rash decisions and costly mistakes.
1: “I’m never going to need it”
“Everyone admits they’re not going to live forever, but planning for death is still easier than the conversation about planning for long-term care,” says Jackie Clark, Long-Term Care Planning Specialist with Farmington River Financial Group. The need for care is touchy, and many clients won’t start the conversation themselves.
With just over five percent of the 65 and older population occupying nursing homes, many clients may might assume that their own long term care is a relative improbability. Yet retiring boomers are living longer than any other generation, and there’s a lot more to long term care than skilled nursing. From in-home care to assisted living, roughly 70 percent of people currently 65 and older will need some form of LTC. And someone who buys an LTC insurance policy at 60 has a 50 percent chance of using it before they die.
2: “Medicare will cover me”
“Because Medicare is so limited when it comes to long term care, people vastly underestimate the impact it will have on their retirement plan,” says Clark.
Part B only covers up to 100 days of care in a skilled nursing facility, and only if that care was triggered by a hospital stay of three days or longer. Even then, only the first 20 days are covered in full, and the remainder costs patients $164.50 per day in co-insurance.
Medicaid, on the other hand, will cover long-term care, but only if a client has depleted their assets. Not all nursing homes, assisted living facilities and home care companies accept Medicaid, either; private pay often puts people at the front of the line. Given the low asset levels necessary to qualify for the government coverage in the first place, clients discharged from a facility are often left with little to live on.
3: “Long term care insurance is the best way to pay”
Monthly costs average $3,861 for home health aides, $3,628 for assisted living and $7,698 for private nursing home rooms. With costs that high, clients often assume long-term care insurance is the best funding vehicle (or that any planning is futile).
“There are so many other ways to help clients prepare,” says Clark. “If you look into asset-based products, you can reposition those dollars whether they need LTC or not.”
Many clients can’t stomach paying a few thousand dollars per year for a policy they may never use — but plenty of hybrid life insurance policies allow them to use their death benefits early for long term care.
4: ”My family will take care of me”
“Among clients with children, about half who say their kids will take care of them haven’t had a heart-to-heart about what that would really mean,” says Clark.
Adult children usually have full-time jobs and families of their own, and spouses may be unable to handle the physical demands of full-time care.
It’s not totally unrealistic to expect help from family members. It just takes more planning (and money) than most people realize. Given the time and effort required, a caretaker will still need funding to offset the loss of income by going part-time or leaving work altogether. For advisors, this means a deeper dive into flexible funding strategies – a reverse mortgage over a reimbursement-based insurance policy, for instance.
5: “I’ll run out of money in a nursing home”
While an extended nursing home stay can drain a retiree’s assets, longevity isn’t the risk it’s made out to be.
“It’s rare to see someone lasting five or more years once they check into a facility, and Social Security and supplemental investments are usually enough to cover those costs,” says Eric Aanes, president and founder of Titus Wealth Management. “Where we see the greatest risk is when a couple has between $500,000 and $1 million in assets, and one of them spends an extended period of time in a skilled nursing facility.”
Some couples who overestimate their costs end up making rash decisions, however – even selling their homes.
6: “In-home care is more affordable than assisted living”
Most people want to age in place, and many assume in-home care will be cheaper than assisted living – seemingly a win-win.
“That’s a real fallacy, and it’s been our experience that people who can’t do the activities of daily living need to move out of the home altogether because the costs of care become so prohibitive,” says Aanes. For errands and occasional help around the house, a part-time home aide may make sense. But when a client or their loved one needs help cooking, cleaning, bathing and toileting, “the costs become so astronomical that the idea of staying in their home doesn’t last very long,” says Aanes.