Longer life spans and better health has the baby boomer generation living long past retirement, and the idea of needing assistance with daily activities seems like a distant proposition. But since the cost of long-term care increases with age, purchasing insurance for it is most affordable before retirement -- a time when boomers aren't typically focused on making that purchase.
In 2012, nursing home care averaged $74,800 a year, according to a report by the Henry J. Kaiser Family Foundation. The report goes on to say more than 10 million Americans need some sort of long-term care, and about half of them are age 65 and older.
“As we age, usually our medical or long-term care expenses increase, sometimes depleting our assets to a level of crisis,” says financial advisor Jake Lowrey, president of Lowrey Financial Group.
“Those older Americans had looked forward to enjoying their golden years,” Lowrey says. “They should be able to have actual golden years instead of what can end up being scary years, both personally and financially.”
Lowrey discussed long term care coverages with me, and offered advice on what baby boomers can do to ensure their future medical needs do not deplete their retirement accounts.
Boomer: What types of services does long term care cover and what would the cost of the policy be for boomers in there 50’s or 60’s?
Lowrey: The types of services that LTC insurance will cover are assisted living, skilled nursing, in-home healthcare, adult day care and alternative plan of care.
For a traditional LTC policy the cost is usually $3,500 - $5,000 annually depending upon if it’s a single person or a married couple.
For asset based policies the average deposit is 100k, this would include cash value and a death benefit. This would be owning instead of renting your policy.
Boomer: What is the most common type of long-term care?
Lowrey: There are two types of Long-term care coverage we have traditional and we have asset based.
Traditional policies you typically pay premiums for life and it’s usually more cost effective. They don’t have a cash value and don’t provide a death benefit.
Asset based policies will typically be more expensive and can be purchased with a lump sum or premium payments. This type of policy has a cash value and will pay a death benefit and it also has an exit strategy The “exit strategy” means if you decided you no longer want the policy you have the option to walk away with the guaranteed surrender value or return of premium, depending on the contract.
Boomer: For retirees planning for retirement, how important is it to become educated about what the pitfalls are and what do they need to do to avoid losing their life savings?
Lowrey: In my opinion, it is very important for retirees to get educated on what the future can potentially hold. I see family’s everyday out living their money and it’s a very sad situation. It’s extremely hard to see a person that is unable to provide for themselves and not have the savings to pay for the care they need for their activities of daily living.
Boomer: What should retirees project the cost of LTC to be in the event their health fails in their golden years?
Lowry: Assisted Living and Nursing home costs in today’s market will depend upon the individual’s level of care needs but typically the range will vary from 30k to an excess of 100k per year. These numbers are only subject to increase. This is why coverage is so important.
Boomer: What are some of the strategies seniors can use to lessen the impact of expenses brought on by long term care?
Lowrey: They can buy Long-term care insurance policies or use their retirement funds to purchase an annuity that has a long-term care rider or income doubler. Some life insurance policies will sometimes have LTC options. But a traditional or asset based LTC policy is specific to an individuals long term care needs.
Some additional strategies seniors can use to lessen the impact of long term care expenses include:
- VA benefits. Military veterans may be able to offset nursing home or assisted-living expenses through benefits provided by the U.S. Department of Veteran Affairs. A veteran’s eligibility for long-term care services would be determined based on his or her need for ongoing treatment, personal care and assistance, as well as the availability of the service in the area where the person lives, according to the Department of Veteran Affairs.
Other factors, such as financial eligibility, a service-connected disability, insurance coverage, and/or ability to pay may also come into play.
- Medicaid compliant SPIAs. A SPIA is a single-premium immediate annuity. Typically, a SPIA is a contract with an insurance company where you pay the company a sum of money up front (the premium), and the company promises to pay you a certain amount of money periodically for the rest of your life.
A Medicaid compliant SPIA is a specially designed annuity that pays out over the person’s “life expectancy” and has other specific characteristics. A couple who put money in a Medicaid annuity are able to avoid having the income from that annuity count against the financial assistance a spouse receives for nursing home care.
Irrevocable Trusts: A planning method used by attorney’s to potentially shelter assets from unforeseen expenses. This is done by changing the ownership of the assets to the trust. Most states have a “look back” period for eligible assets when qualifying for Medicaid and other programs. If the assets in the trust exceed the “look back” period the assets in the irrevocable trust could be considered protected from these unforeseen medical expenses or at least give the family options. These parameters are set at the state level and are subject to change and/or not considered protection. Individuals and/or families should consult with a lawyer in their state for their state specific laws regarding trusts.