It’s a sobering statistic that shouldn’t be ignored. According to the U.S. Department of Health and Human Services, at least 70 percent of people age 65 and over will require long-term care services at some point in their lives. But this critical need is not always considered when people plan their retirement.
“Unfortunately, about half of Americans begin thinking about it later rather than sooner,” says Maurice Quiroga, executive vp and managing director of PNC Wealth Management. “Neglecting that component of retirement planning is a common mistake, because people feel they have adequate assets to pay for long-term care, or they believe Medicare will help them, but Medicare only pays for nursing home costs under particular circumstances and for a limited time period.” In order to receive Medicare benefits, a person must be hospitalized for three consecutive days and be admitted to a nursing home within 30 days of discharge. “But remember, after 100 days, Medicare is done,” he explains. “What do you do then? You’ll begin using your own assets, unless you have long-term care insurance.”
Long-term care (LTC) insurance policies can protect assets, but Quiroga advises people to evaluate the policy and their particular situation carefully. “Of course, the younger you are when you purchase it, the more affordable it is. Keep in mind that companies cannot arbitrarily increase premiums—any increase must be approved by the state. But consider whether you can afford the premiums today and into the future without a change in your lifestyle.”
While LTC insurance can be an important tool in a retirement plan, the need for such a policy depends on an individual’s level of wealth. “I consider a person’s total assets, as well as their age, before determining the need,” says Moneta Group principal Linda Pietroburgo. “If the investable range of assets is $700,000 to $1 million, they are probably going to deplete their assets anyway, so I am reluctant to have them pay, perhaps $4,000 or $5,000 a year, for a policy that is only going to postpone the inevitable.”
Pietroburgo believes the most important step is having a comprehensive plan in place. “If you have that, and you communicate it to your children, you really are giving them a gift. To be able to say, Dad and I can take care of our needs or, more important, I can, because it’s particularly essential for widowed or divorced women.” With regard to LTC policies, Pietroburgo believes those that offer a ‘shared-care benefit’ are especially practical. “Policies used to be time-driven, and people would hesitate to file a claim because they didn’t want the clock to begin ticking. But a shared-care policy is asset or ‘pool-of-money’ driven, so you’re accessing a maximum dollar amount as opposed to a maximum time limit, which allows you to draw on it as needed.”
Although they are often promoted as funding for retirement, Pietroburgo strongly advises people to be careful before considering a reverse mortgage, which let an elderly homeowner borrow money that is charged against the equity of their home. “Unless you have expert advise or expertise in that area, you can get into trouble,” she cautions. “These mortgages are targeted at older people who often do not understand the associated expenses and risks.”
Even a carefully developed retirement plan should be monitored as laws and situations change, says David Ott, partner at Acropolis Investment Management. “It’s really a continuous process. Sometimes the change occurs with the client—and it may be good or bad. Perhaps a spouse becomes ill, or someone receives an inheritance. Or Social Security and investment rules may evolve.”
Many people become aware of the need for long-term care planning when they see a loved one who needs care. “When my own mother was looking at long-term care, I ended up buying LTC insurance for myself, even though I had mixed feelings about it for years,” Ott says. “When you’re actually dealing with it, the need is very obvious. And, if you are able to afford the premiums, you are more likely to get the care you need because the financial concern is removed. Then you can focus on your health and that’s where the focus should be, anyway.” One advantage, he adds, is it may permit people to leave money for their heirs. “That’s not the primary consideration in buying it, but if you have a long-term care policy in place, that should leave more for your kids.” LN