Long-Term Care Insurance Protects Your Retirement Lifestyle
By J.J. Montanaro
Winter 2007-08
The fact that Americans are living longer than ever is good news – and bad news.
The longer you live, the greater your chances of needing some sort of expensive long-term care, such as a stay in a nursing home. In fact, the American Society on Aging estimates that 70 percent of people over age 65 will require this type of dedicated assistance before they die.
This makes long-term care insurance an important retirement planning consideration. Long-term care includes a wide range of medical and support services for the elderly or ill who have trouble with everyday activities most people take for granted, such as eating, bathing or dressing. Beyond nursing homes, long-term care also can take place in assisted living facilities, home care arrangements or other settings.
With any of these services, the chief concern is the incredibly high cost. According to the Genworth Cost of Care Survey, just one year in a nursing home can cost more than $75,000 today. With costs increasing at about five percent annually, the price tag could skyrocket to $185,000 to $300,000 per year in 20 or 30 years.
While it takes most people decades to build the financial security they need to retire comfortably, it’s easy to see how just a few years of long-term care could wipe out all of that hard work.
Long-term care insurance is designed especially to prevent that type of devastating financial impact. With a policy in place, the insurance company will help cover your costs if and when you need long-term care. This can help preserve your hard-earned retirement fund for your remaining years or pass an inheritance to your heirs.
Importantly, preparing for the possibility of long-term care is a challenge most retirees must address on their own. TRICARE and Medicare don’t cover most long-term care expenses, and Medicaid is reserved for people who have nearly depleted any retirement savings they might have had. Furthermore, Veterans Administration hospitals limit long-term care on a “space available” basis.
Long-term care insurance is often the only option to safeguard your retirement assets – and your way of life – if long-term care becomes necessary.
Weighing The Costs
Despite the potentially enormous costs of long-term care itself, long-term care insurance may not be as costly as you think. For example, a 60-year-old married person in average health could expect to pay roughly $2,000 a year for the coverage. More than pocket change, to be sure, but the likelihood of needing long-term care in the future could make the cost worthwhile.
Let’s assume you remain moderately healthy for many years and don’t need long-term care until you’re 85 years old. If you chose to buy long-term care insurance at age 60, it means you would pay for the coverage for 25 years before you needed it. At an annual cost of $2,000, you would pay a total of $50,000 for insurance before ever filing a claim. A bum deal? Not so fast.
Imagine how not having insurance could affect your retirement savings. Remember, each year in a nursing home 20 years from now could cost at least $185,000 – more than $500 a day. Paying the total expense from your personal savings would eat up $925,000 after only five years – enough to severely deflate or even empty your retirement fund. If you’re fortunate enough to recover and care for yourself again, you may return home to financial hardship. If you spend your final days in a nursing home, it could erase the inheritance you had hoped to leave your children and even place the financial burden on them to pay for your care.
With long-term care insurance to cover the total expense, however, you would make up your $50,000 in premiums in just a few months.
Know What You’re Buying
Never make a long-term care insurance purchase without first researching your options. Active and retired military personnel qualify for the Federal Long-Term Care Insurance Program (FLTCIP), but it’s not always the least expensive. It’s important to compare the costs and options of both government and private insurance companies and to understand what’s covered.
The two main components of a long-term care policy are the “daily benefit,” or the maximum amount the insurer will pay for services per day; and the “benefit period,” or the length of time the policy will pay for long-term care services. Be sure to choose levels that reflect the projected costs in your area, as well as a comfortable time frame. Of course, as you increase your level of coverage, your premiums will rise.
Without a crystal ball to see the future, deciding whether you need long-term care insurance can be a complex process of balancing your risk with your financial resources. Consult a financial planner to help you choose the right path.
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Joseph "J.J." Montanaro is a CERTIFIED FINANCIAL PLANNERTM practitioner with USAA Financial Planning Services, one of the USAA family of companies. Montanaro has served in the
