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LONG TERM CARE - WHY AND HOW TO PAY FOR
Question: I am nearly 70 and have not purchased long-term care insurance. Is it too late for me to do that due to the cost? Is it still wise for me to consider?
Answer: To borrow a phrase from Clint Eastwood, "Do you feel lucky?"
When it comes to your planning for retirement, may I suggest you plan like a pessimist so you can live like an optimist?
If you plan for everything to run smoothly, life will inevitably disappoint you and you'll be unprepared. Unprepared and disappointed people soon turn pessimistic and sour. Sounds like fun, doesn't it?
But if you'll be a bit pessimistic in your planning, assuming some things will go wrong, you'll be much better prepared and able to withstand the bumps in the road. You will have given yourself the margin to be optimistic.
So let's be just a bit pessimistic and assume that you will one day need some kind of long-term care.
There are only a few answers to the question of "who will pay the bill if I go into a nursing home?"
If you're flat broke and living on Social Security checks, whatever nursing home care you may receive will most likely be paid for by Medicare or Medicaid.
Medicare only pays for nursing home stays after you have spent a certain amount of time in the hospital. And Medicaid only pays if you are broke. Even so, Medicare and Medicaid amount for 70% of the spending on nursing home costs.
However, if you are in that vast middle ground of folks that have worked and saved and have something of a nest egg you would hate to see dissipated by long-term care costs, long-term care insurance is something you need to consider.
According to the 2010 Cost of Care Survey by Genworth Financial, the cost of semi-private nursing home room is $48,636. If you want a private room, the cost is $50,454.
Do a bit of math in your head - how long would it take to exhaust your nest egg spending $50,000 a year? For many, the bucks would run out way too quickly.
According to government estimates, long-term care insurance for a 70-year old costs about $3,000 a year. Double that for a couple.
Now suppose you have $250,000 in the bank.
It would take you five years to exhaust that if you had to spend it on nursing home care. But $6,000 a year (the cost of long-term care insurance for two) is only 2.5% of your nest egg. I know savings rates are historically low now, so you might even eat into some of your principal if you paid for your entire long-term care premium out of your nest egg. But you wouldn't run out of money doing that.
And there are even more interesting options out there for funding your long-term care insurance. If you are willing to let an insurance company hold some of your money in a single premium whole life policy, you may not have to pay any premiums at all - they use the float on your money to finance the long-term care insurance and still give you a little return on your money. And if you never spend that money for long-term care, your heirs may receive it income tax-free as a life insurance death benefit. For those who have the cash, this is an interesting option.
No one answer is right for everyone when it comes to paying for long-term care. Be sure to discuss any insurance options with a knowledgeable, licensed agent.
A little bit of pessimism during your retirement planning can lead to a much more optimistic outcome in your retirement living.
Byron R. Moore, CFP® is managing director / planning group of Argent Advisors, Inc. Email him at bmoore@argentmoney.com. Write to him at 500 East Reynolds Drive, Ruston, LA 71270 or call him at (318) 251-5858. The views expressed in the preceding commentary do not necessarily reflect the views of Argent Advisors, Inc. No forecasts can be guaranteed. Argent Advisors, Inc. does not offer tax, insurance or legal advice. The information contained in this column should not be construed as a substitute for personalized investment, tax, insurance or legal advice.
Sources:
" US Dept of Health and Human Services
" Genworth Financial 2010 Cost of Care Survey
" LIMRA 2008
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