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If You’re Facing the Future with No Long-Term Care Plan, Here Are Four Options You Could Consider

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The predictions may vary, but the bottom line is clear: a significant majority of today’s retirees are going to need long-term care at some point in their future. The 2022 Genworth report puts the figure at about 70 percent – which means that failing to take the costs of long-term care into account in your future planning is a good example of hiding your head in the sand.

But how do you prepare? Let’s say you’re a healthy person in your mid-40s, starting to consider your long-term care options. In this recent article from Kiplinger, attorney and insurance professional Stephen Dunbar introduces us to a client of his who fits that description. In the article, Dunbar outlines what he believes are the four options facing most of us as we consider how to plan for the cost of long-term care, and he gives basic pros and cons for each. It’s a pretty good overview of the possible paths out there, but it leaves quite a few stones unturned, so to speak. Let’s take a look.

Only a Handful of Americans are Ready for Long-Term Care

Writing for Kiplinger, Dunbar leads off with a grim statistic. “You might be shocked to discover,” he writes, “that as few as 3 percent Americans have a fully funded plan for long-term care expenses. Although, on second thought, maybe you wouldn’t be surprised at all — because you’re one of them. Which means, just like for everyone else, the sooner you change that, the better.” (We’re not completely sure what he means by “a fully funded plan,” but we get the point.)

“Of course,” Dunbar continues, “knowing you have to start and knowing where to start with long-term care planning can be two different things. So, to help, let’s consider the case of Jennifer, a 45-year-old small-business owner who lives with her husband and young son in New York.”

Too Many Things Interfere with LTC Planning

“Like many people, the busyness of life and work mean Jennifer has yet to fully lock down her long-term care preparations,” Dunbar explains. “However, having recently experienced the challenges of caring for a family member suffering from a serious illness, she’s now keen to get a plan in place.”

Jennifer explains the predicament well. “When you’re caring for someone, it’s totally all-encompassing,” she told Dunbar. “So, there’s a real sense of guilt because you don’t have enough time to focus on anything or anyone else. As for your own self-care, you just don’t take a back seat, you’re in the trunk!”  Jennifer experienced the rapid decline in her loved one’s condition and the pain of having to cope. It made a deep impression.

“If I need long-term care one day,” she said, “I don’t want my family to have to go through the same thing.”

Fortunately, Dunbar writes, Jennifer is starting her preparation fairly nearly. “It’s not too late for her to get started,” he says. “The advantages of doing so are also clear. Research shows that people with a fully funded long-term care plan tend to remain in their homes longer, get more longevity out of their retirement nest egg and benefit from the fact any payments from a properly structured plan are made tax-free.”

With a Clear Plan in Place, Family Can Focus on Relationships

Dunbar makes it clear that long-term care planning is not merely financial. “The value also extends beyond just economics,” he states. “With a clear long-term care plan in place, it’s much easier to delegate tasks that are purely medical to a professional — stuff like getting the correct medications, choosing the right kind of bed and going to the pharmacy. This leaves your loved ones free to focus on your relationship and on spending quality time with you.”

In his article, Dunbar also sounds a warning to avoid trying to plan when under stress. “Preparing for your long-term care now also means you’re making decisions when life is stable,” he says. “This is far more sensible than trying to do it when you’re already unwell or in the midst of a crisis. Plus, it helps you set a good example to your kids about being willing to make hard decisions rather than procrastinate.”

Still, the article acknowledges, money is critical to adequate LTC planning. “According to the National Association of Insurance Commissioners (NAIC), most of us can expect to spend somewhere between $250,000 and $300,000 on long-term care,” says Dunbar. (This, of course, depends on several variables.)  But no matter the amount, the article states, Jennifer has four options to pay for that care.

Option #1: Use Investments, Sale of Assets to Self-Fund

Self-funding is often best for people with means, Dunbar suggests. “This option benefits from being easy to set up and flexible, as the funds can be used however you want — be that to pay for long-term care or for something else.”

But, while self-funding is flexible, it’s also expensive. “It requires the most money because there’s no leverage from an insurance contract,” the article warns. “There’s also the risk that your investment or asset suffers a loss in market value at the very time you need to pay for long-term care.” When the time comes, will you be able to afford high care costs – $10,000 per month or more – for an extended period?

Option #2: Buy a Stand-Alone Long-Term Care Insurance Plan

LTC policies have been around for several decades, yet research shows that only about 7 percent of those 50 and older own an LTC policy.

“The good news here,” says Dunbar, “is that premiums can be tax-deductible as a business expense and that policies often include an inflation rider to protect against inflating healthcare costs. It also potentially qualifies you for your state’s Partnership Program, which lets you shelter an amount of assets equal to the amount of care funded through the contract while still qualifying for Medicaid.”

But rates can increase, as many who bought policies more than a decade ago have discovered. This higher premium can make an already pricey policy even less affordable as we age. Also, Dunbar notes, “there’s no accumulated cash value, which limits flexibility. Crucially, if the plan isn’t used to fund long-term care, the money is lost.”

Option #3: Set Up a Hybrid Contract with LTC Rider

There are several ways to set up increasingly-popular hybrid LTC plans, some using life insurance and others built around annuities. “The advantages of most hybrid long-term care insurance contracts are they offer flexible premium options, have no rate increases and have an accumulated cash value,” Dunbar writes. “They also carry a death benefit that lets you recover the cost if you don’t need long-term care after all.”

But these plans can be complex. “That said,” he adds, “always check the details. In some instances, inflation riders might not be available while and the cash value accumulation and death benefit may not be fully guaranteed.”

Option #4: Rely on Government Medicaid/VA Programs

Medicaid (or in some cases the Veterans Administration, or VA) is the federal/state program that pays for long-term care, often in licensed nursing homes or adult family homes. Medicaid actually funds most nursing home care in the U.S.

“The benefit of this approach is the guaranteed access to facilities based on the payment of Medicaid premiums,” says Dunbar. “However, the challenges are a loss of control over where we get old and who provides our care as well as the fact the facilities may not be of the highest quality. Note also that it requires you to prove you are ‘poor on paper’ by moving any assets out of your name in advance.”

There are several legitimate and useful strategies, such as a Safe Harbor Trust, that can help you utilize earned benefits under Medicaid while still protecting some or all of your assets. We urge you to contact us for further details on this important decision.

Jennifer’s Decision – and Yours

So, what was Jennifer’s decision? For her and her particular needs, a hybrid contract with a long-term care rider along with a conservatively-managed self-funded account was the answer.  “But,” Dunbar cautions, “as with Jennifer, it’s important to properly analyze your individual circumstances before making any decision, ideally with the help of a qualified financial professional. They can help you understand the options available, make the complex simple and find a way to integrate long-term care preparations into your overall financial plan without it impacting your current lifestyle.”

Of course, we at AgingOptions and Life Point Law would welcome the opportunity to walk with you through the long-term care planning process and show you how it fits in as part of a much larger process. We do agree with Dunbar’s final point that the sooner you plan, the better.

“Right now,” he concludes, “it may feel like thinking this far ahead is just another tricky item on your already-bulging to-do list. But fast-forward a few years, and your future self and your loved ones will be very grateful that you had the courage and foresight to address this issue now.” We say “Amen” to that.

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(originally reported at www.kiplinger.com)

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