The LTC elephant in the room
November 10, 2014
by Brian Wolf

A few times every year, I revisit long-term care issues in my column. The reason I do this is because it's one of the most important financial decisions people can make, and yet it's also one of the most misunderstood. The most dangerous issue in retirement is one that is often overlooked or not given serious consideration. How will you pay for long-term care, without devastating your retirement savings in the process?

By the year 2030, we will have more than 70 million people over the age of 65. That is almost one of every five Americans. Long-term care will be a serious expense for everyone over age 65; it might be the most dangerous financial issue facing all Americans.

The US Department of Health and Human Services is forecasting that 70 percent of people who reach age 65 will require some type of long-term care; lasting on average for three years. The costs of care are in the neighborhood of $8,000 per month ($100,000 per year), which means you could be looking at $300,000 needed to pay for long-term care.

I know that the last 3 clients that I worked with here in Minnesota who needed LTC were all paying over $100,000 per year, and they were all receiving what I would consider basic care.

If you factor in a low three percent inflation to those numbers, then the problem becomes enormous. You would need $16,000 per month, or at least $200,000 per year, or an average of $600,000 per person by the year 2038.

It really doesn't matter if you're in a long-term care facility or you're getting care in your own home, this care is expensive! How long would your retirement money last with a $100,000 drawdown each year for long-term care costs?

So, what is your plan? Who and how will you care for your parents, your spouse, or yourself if Alzheimer's, a stroke, or any other major health problem comes to your family. Most people with Alzheimer's are cared for at home. One-third of Alzheimer's cases last as long as five years. Sometimes family members will step-up and care for their loved ones, without really understanding what a tremendous physical and emotional toll this can be.

I know this seems like an enormous problem, and it is. But with proper planning and the correct use of leverage, these issues are not insurmountable. We can care for all of these people without bankrupting ourselves and our country if we start planning now. Planning is where our value lies.

Long-term care coverage is expensive and has experienced many rate increases in the industry's search to price this coverage correctly. Many people worry that they will pay these expensive premiums for many years and then not use the coverage, and so they decide to take their chances and not get any coverage at all. Many Americans also don't plan for long-term care because they incorrectly think they have coverage under their insurance. Remember, Medicaid and Medicare programs are designed to cover things other than long-term care costs.

There are, however, some good alternatives. You could apply for a basic long-term care policy that pays some, but not all of the long-term care costs. You could purchase a combo plan that would combine an annuity or life insurance policy with LTC coverage, so if you don't use it, you wouldn't be paying for it. We also offer creative planning in the gifting area to limit or eliminate your exposure to this risk.

As always, the key is to be informed, work with a qualified advisor, and don't procrastinate any longer.

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