By Joe Gross, CDFA®
We all have plans for what we want to do in our later years of life. For some, it’s golfing at a different course every week; for others, it’s trying out new foods in new cities—while some of us just want to sit on our porches enjoying the peace. No matter what, we all want to spend these years doing what’s important to us. But while these plans sound amazing, we don’t always plan for when things take a turn for the worse.
That is where long-term care services come into play. Recent research shows that 70% of people will need these types of services at some point in their lives. The need for these services can be sudden, and the cost that comes with them can be high. But you don’t have to let these circumstances sidetrack your dreams. We firmly believe that planning for long-term care expenses is a key part of your retirement plan.
Let’s discuss what exactly qualifies as long-term care, mistakes we often see people make, and some considerations to implement coverage should you need assistance later in life.
What Is Long-Term Care?
Long-term care refers to helping people perform activities of daily living (ADLs). There are six ADLs, and to qualify for long-term care, you need to be unable to complete at least two of them without assistance.
These activities include bathing, eating, dressing, using the bathroom, transferring from one place to another (like a couch to a bed), and continence. If you aren’t able to do these on your own, you’ll need assistance. The question then becomes: How do I plan for this type of scenario? Do I pay for it out of pocket, purchase an insurance policy, or find some other alternative?
Before we get there, let’s discuss what not to do.
3 Long-Term Care Mistakes
The biggest mistake you can make is not being prepared, especially as it relates to how much long-term care could cost. Since the types of ailments any of us may have in the future vary greatly, the cost associated with that care will also vary. For example, if you are able to live in your home but still need assistance with some ADLs, you could hire a home health aide to come assist you. In Oregon, the median hourly cost for this service is around $33.95.
However, if the type of care you need is more extensive and you need a private room in a nursing home facility, it would cost $11,790 per month. If you were to spend a year in the nursing home, it would cost a whopping $141,482—and some people spend multiple years in these types of facilities.
While we don’t have a crystal ball and cannot predict your future health, we do know that people who are aware of these potential future costs are better able to plan for these expenses, which helps them meet their retirement goals regardless of whether they need this care or not.
Another mistake we see far too often is incorrectly planning for LTC. While it might be a nice idea to assume that your spouse or children will take care of you, it often doesn’t play out that way in reality. Your spouse will likely not be able to handle the physical demands of this care, and your kids will have their own lives and responsibilities to manage. Even if they want to, they won’t be able to give you the time and attention you will need at this stage of life.
Lastly, even if you do purchase a long-term care policy, you need to understand what your policy would cover and what it wouldn’t. You cannot simply assume that insurance will cover everything, because that may not be the case. While these policies can usually cover 100% of home healthcare expenses (as they are the most affordable), they may not be able to cover all expenses associated with assisted living and skilled nursing.
How to Cover Your Long-Term Care Needs
If you want to properly plan for your long-term care needs, I highly recommend you work with an independent financial advisor who can help you tailor a solution to your specific needs. There are a variety of options in the marketplace, and this isn’t a purchase that you should make without proper due diligence.
There are a few options we like to consider when evaluating policies. First, we think that a shared care rider on a traditional long-term care policy could be a great option. A shared care rider is for couples who own a policy together and allows them to share their maximum benefit amount. For instance, if a policy only allowed each spouse $250,000 of lifetime care, if one spouse hit that limit, then they would be left paying for everything above that amount out of pocket. With a shared care rider, once that spouse exceeded $250,000, they could then tap into their spouse’s lifetime benefit, allowing the couple to continue to benefit from their insurance policy. To lower your risk in the event of significant long-term care costs, consider this route.
Another option is a hybrid long-term care policy. Instead of owning a traditional long-term care policy (which only provides you a benefit if you need long-term care assistance), a hybrid policy can offer more flexibility. These types of policies combine long-term care benefits with life insurance benefits. If you end up needing long-term care help, these policies can be used for those purposes; but if you don’t need the help, they will provide a death benefit to your beneficiaries at your passing. For people who aren’t sure they’ll need to use their policy and are worried about not getting a benefit from it, this might be the solution.
Let’s Put Your Plan in Place
It can be easy to overlook something like long-term care, but take it from us at JGP Wealth Management, taking some time to set up a strategy that works for you helps keep your plans on track and your future dreams within reach. And don’t worry if it feels a little overwhelming. We’re here to help!
If you’d like to partner with a financial planner who understands your unique needs and inspires you to be more confident in your financial decisions, contact Joe today at 503-446-6450 or firstname.lastname@example.org.
Joe Gross is first vice president and senior financial advisor at JGP Wealth Management, an independent, fee-based financial advisory firm in Portland, Oregon. With over 25 years of experience under his belt, Joe is passionate about putting his clients first and helping them stay focused on their financial goals, inspiring confidence in their future. As a Certified Divorce Financial Analyst® professional, he specializes in addressing the unique financial issues of divorce. Joe is known for his tenacity to keep clients on track toward their dreams and for his attention to detail, which is second to none! His clients know that nothing will slip through the cracks when working with Joe!Joe graduated from the University of Arizona with a bachelor’s degree in finance. Outside of work, he enjoys being involved in the community and is actively involved with organizations close to his heart. Joe is a former president and current board member of the ALS Association of Oregon and Southwest Washington and a long-time member of The Multnomah Athletic Club. In his free time, he enjoys fly fishing, spending time with his family, and cheering on his alma mater, the University of Arizona. To learn more about Joe, connect with him on LinkedIn. You can also watch his latest webinar on How To Pick Up The Financial Pieces After Divorce.