Brought to you by A.Gary Katz
In conjunction with Lincoln Financial Advisors/Sagemark Consulting, a division of Lincoln Financial Advisors, a registered investment advisor
Escalating health care costs can undermine the best-laid retirement plans. One of the biggest risks lies in the cost of long-term care. Unfortunately, health care costs in general have been outpacing inflation, and this trend to may continue.
Even if you’re currently in good health, you can’t guarantee that it’ll continue in your later years. Not being prepared can be very expensive. According to MetLife, the national average cost for a semiprivate room in a nursing home is $6,752 a month, and $7,543 a month for a private room*. At that rate, it wouldn’t take long to put a sizable dent in the most nest eggs.
Most people think of long-term care as nursing-home care, but, in fact, most of the people who need long-term care need it in their own homes or in assisted living. This means that nursing homes are only one part of the picture. About 60 percent of the population over age 75 will need long-term care for approximately three years2, whether in a nursing home, assisted-living facility or at home. The latter two alternatives – while usually less expensive than nursing-home care – are by no means cheap. Care in an assisted living unit costs $3,550 a month on average, according to MetLife.* Round-the-clock care at home can also add up fast.
Insuring Against the Cost
Long-term care insurance policies are designed to defray the cost of nursing-home, assisted-living and at-home care –costs that are not covered by Medicare except in very limited circumstances. Today’s policies typically offer the same daily benefit for each level of care. Eligibility kicks in when an individual is unable to perform two out of six “activities of daily living.” These include toileting, bathing and being ambulatory.
If you have $10 million in assets, you may not need long-term care insurance. But $5 million may not be enough, as comfortable as it seems, especially if half of those assets are locked up in illiquid assets such as real estate or if you want to leave as much of your estate as possible to your heirs. The government adds an incentive in terms of partially tax-deductible premiums. For 2013 the yearly maximum deductible amount of $360 for those under age 40 rises to $4,550 for those over age 70.
But don’t wait to buy long-term care insurance until age 65, because premiums then could be very high. The most cost-effective purchase point is from the early 40s to the early 50s. Whenever you buy, be sure to buy a policy that increases benefits to keep pace with inflation. You can also keep costs manageable by electing a waiting period before benefits begin and by limiting the length of coverage to four or five years instead of a lifetime.
Beyond Long-Term Care
If you retire at age 65 or beyond, Medicare plus a Medicare Supplement policy should cover most of your medical expenses. If you retire earlier, however, you may want to purchase a personal health insurance policy. Either way, it’s crucial to select coverage that matches your lifestyle. For example, if you enjoy foreign travel, you may want to consider a policy that includes coverage outside of the United States.
Long-term care insurance is designed to be flexible where you can control the costs relative to the benefits you wish to receive. Long-term care policies offer various kinds of coverage. Some offer adjustments for inflation, others pay only for a stated number of days, and others offer a life-time benefit. When deciding on a policy, you should compare the benefits of different types of policies, the limitations and exclusions, the types of facilities the policy would cover, and the cost of the premiums
*”MetLife Mature Market Institute” (https://www.metlife.com/assets/cao/mmi/publications/studies/2012/studies/mmi-2012-market-survey- long-term-care-costs.pdf), accessed February, 2013.
2. DHHS, 2008. Statistics taken from www.longtermcare.gov.
A. Gary Katz is a registered representative of Lincoln Financial Advisors Corp., a broker/dealer, member SIPC, and offers investment advisory service through Sagemark Consulting, a division of Lincoln Financial Advisors Corp., a registered investment advisor, Lincoln Financial Advisors, 61 S. Paramus Rd., Paramus, NJ 07652. Insurance offered through Lincoln affiliates and other fine companies. This information should not be construed as legal or tax advice. You may want to consult a tax advisor regarding this information as it relates to your personal circumstances. The content of this material was provided to you by Lincoln Financial Advisors for its representatives and their clients. CRN201302-2077494