While creating retirement plans for our clients, we always make sure to share the potential costs of long-term care (LTC) services. As with all medical expenses, the costs for this care are rapidly rising and can easily be one of the largest expenses you may encounter throughout retirement. It is important to address these concerns and plan your preferred route for covering the expenses should they arise.
Factors that Influence Your Need for Long-Term Care
One of the most challenging components of this type of planning is that not everyone will need Long-Term Care services. We can use family history as a starting point, and if your relatives tend to live longer than average lives, you may have a higher need for Care. Widows typically have a higher chance of the need for LTC services since their spouse is no longer alive to help them with the activities of daily living. Adult children who live nearby may be able to offset those chances and lower the odds for Care if they are able to help assist with those activities or as needed.
Lastly, the need for independence may also dictate whether Care is pursued and to what extent. Someone who is very independent and prefers to live in their own home may opt for no care or for in-home Care instead of moving into a facility.
Exploring Options for Covering Long-Term Care Expenses
A few different routes can be utilized to plan for potential long-term care expenses. First, there are insurance products available that offer these specific benefits. They come in the form of the traditional use-it-or-lose-it policy that will be forfeited if the insured passes away before using the long-term care benefits.
Our clients tend to gravitate towards other policies instead, such as a life insurance policy with an LTC rider or an annuity solution with an LTC rider. These options will provide the LTC benefits if needed and then an alternative death benefit payout if LTC is not needed. This can be more assuring for clients, but the LTC rider may also make it a more expensive route or a large upfront premium may be needed.
Self-Insuring for Long-Term Care
Clients with substantial assets may prefer to pay out of pocket if they need LTC care. This could be seen as “self-insuring” since the client is assuming the responsibility for paying these potential costs. An LTC policy may still allow them to protect their estate’s assets, but these clients tend to not be concerned about LTC and prefer to keep their accounts invested in growth products to increase their estate size potentially.
Medicaid as a Last Resort for Long-Term Care Costs
Lastly, the final option is to rely on Medicaid to pay for the LTC costs. Medicaid is available when individuals do not have the assets required to pay for the Care. They will be required to “spend down” their assets to the Medicaid-specific level, and then Medicaid will begin to garnish their income sources in return for covering the costs for Care. This means that individuals with smaller estates may still have a fallback plan in case they need the Care and cannot afford it.
However, Medicaid-approved facilities/services tend to be of lower quality since the federal government funds them and not privately by the long-term care patients. This is undoubtedly a factor to consider when weighing the LTC planning options.
Budgeting for Long-Term Care – Highlights
- Long-term care can easily be one of the largest expenses of your retirement plan.
- Not everyone will need Long-Term Care services, and every situation is different.
- A Long-Term Care policy can help cover future expenses; you can pay out of your pool of retirement savings, or you could rely on Medicaid to cover the costs.
Speak With a Trusted Advisor
If you have any questions about Long-Term Care, your investment portfolio, taxes, retirement planning, our 401(k)-recommendation service, or anything else in general, please call our office at (586) 226-2100. Please also reach out if you have had any changes to your income, job, family, health insurance, risk tolerance, or overall financial situation.
Feel free to forward this commentary to a friend, family member, or co-worker. We hope you learned something today. If you have any feedback or suggestions, we would love to hear them.
Best Regards,
Zachary A. Bachner, CFP®
with contributions from Robert Wink, Kenneth Wink, and James Wink.
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