Welcome to another edition of Financial Fitness Fridays – my blog where I share a few words of financial wisdom to help put YOU back in the driver’s seat of YOUR financial future.
Today is Friday, October 30th, 2020. This week, we are going to discuss America’s Long-Term Care Crisis.
I do not use the term crisis loosely, so when I say crisis, please sit up and take notice!
As a self-professed insurance nerd, let us talk about some actuarial statistics:
- According to the US Department of Health & Human Services, an estimated 72% of Americans will need some form of long-term care
- The average cost of a nursing home in America is $249 per day (about $90,000 per year)
- The average length of a stay in a nursing home is 2.2 years for men, and 3.7 years for women
- The majority of care given in this country is not actually nursing homes at all – it is done by unpaid, unlicensed caregivers… it is family members.
When I have consultations with seniors, almost all of them are greatly concerned with long term care.
They have often seen family and friends have issues with caregiving difficulties, cost of home health care, or cost of assisted living or nursing homes.
When children try to care for mom and dad, or when one spouse tries to care for the other – it can often lead to stress, the declining health of the caregiver, and loss of income for the caregiver, as they have to take time off work to care for their parents or relatives.
If there are multiple children, how can it be ensured that the caregiving duties and financial responsibilities will be spread evenly among them? (Hint: it cannot, and my experience has been that it rarely happens)
In addition to caregiving duties and financial responsibilities, what about decision making?
2 of the siblings may want mom and dad to stay home, and the 2 other siblings may be tired and worn down from caring for parents and want them to go into assisted living.
This can lead to a lot of friction within families.
I have been doing this long enough to know that there will be many people reading this blog, where some siblings still are not speaking to one another because of what happened with mom, or what happened to dad.
What happens when the level of care simply exceeds what a family can provide, and mom or dad must go into a nursing home?
How will it be paid for?
Well for many people, they will spend what little money they have, and then go on Medicaid, which will pay for their care.
For people who have accumulated a little bit of a nest egg, say a couple hundred thousand dollars – they must spend down that money first, then, and only then – will they qualify for Medicaid. Remember, Medicaid is a welfare program, and it is means-tested.
But did they really put in all of that time and effort over a 40-year career, use discipline to save & invest, and build a nest egg just to have it wiped out by a long-term health care incident?
These are the many things seniors & those approaching retirement must take into consideration, and why many families face such terribly difficult decisions.
People understand that they cannot take their money with them when they pass.
But this is their life’s work.
When their time here on earth is over, and they go to be with the Lord, who do they want to get their money?
Do you think they want it to go to the government or one of these nursing homes or hospitals?
Or would they rather keep their money in their family?
This is why we discuss the topic of risk mitigation strategies and long-term care insurance in the retirement plan.
Implementing long term care insurance into your financial plan can be a terrific way to mitigate not only the financial risks to your family’s nest egg, but also to mitigate the stress upon individuals or even the entire family dynamic.
These plans can be extremely flexible.
You can choose your benefit amount, benefit duration, elimination period, and many other features to give you the best coverage possible.
Conversely, you can cut back on some of the benefit structure to make the policy fit into your budget.
Even if you cannot afford the Cadillac plan that would cover the full cost of a nursing home, what if you could fit a plan into your budget that would reduce your exposure by maybe 75%? Or even 50%? Wouldn’t that still be valuable and provide peace of mind?
Now the thing with long term care is that it IS an insurance policy, so you cannot just buy one any time you want.
You must qualify with good health – meaning that you need to purchase the plan before you have both hips and both knees replaced, or before you start leaving your keys in the freezer if you know what I mean.
The younger you are, the lower the cost, and the more likely you are to qualify.
Personally, I have had the best luck with people under 55 years old getting approved, but on the opposite end of the spectrum, I have had healthy people in their early 70s get approved!
But the earlier the better.
In addition to stand-alone long-term care policies, there are many other options, and the insurance industry is constantly innovating and evolving to keep ahead of economic challenges, so they can best help the consumer.
For example, many people do not like the idea that they may purchase a long-term care policy, pay premiums for 25 years, and then pass away peacefully in their sleep.
That happens less than half of the time, as noted, but it is certainly a consideration.
So, the industry has created life insurance policies with chronic illness riders.
This creates a tremendous amount of leverage, by creating a huge pool of tax-free money, funded by a relatively small premium every month.
After all, why pay dollar for dollar out of your pocket, when for pennies on the dollar, you can put these huge insurance companies on the hook for it instead of yourself?
There are 3 main benefits to these types of plans:
- If the insured needs to go into a nursing home, this allows them to spend their death benefit while they are still alive.
- If they pass away without ever using the long-term care feature, they will leave that large, tax-free death benefit to the family.
- The policy also builds cash value, that the policy owner can use as a tax-free cash flow to supplement their retirement income.
This strategy allows you to use leverage.
It is one dollar doing the work of many dollars, allowing one plan & one dollar to handle whatever life throws at you.
But the cost to do so is just pennies on the dollar!
There are even annuities available where you can add an option so that the income stream increases if you have a long-term care incident.
This will provide additional resources to help pay for that care, which in turn alleviates stress for the family, AND protects the family’s assets.
By NOT planning for a long-term health care incident, you are surrendering control of what happens.
If you do not have a plan, you automatically default to the government plan, which is to spend down all of your assets, and then you go on Medicaid.
Wouldn’t you rather remain in control of your destiny, and in control of your financial and retirement future?
If there was a way to remain in control of your money until you took your last breath, and then instead of giving your money to the government, or a nursing home or hospital, you could keep that money in your family for generations to come, would you want to do it?
If you would like my assistance in this matter, I am here to help. Please give me a call at 248-241-6826 or email me at ronald.sneller@snellerfinancial.com.
Thank you for taking the time to read this blog post!
P.S. If you haven’t checked it out yet, please stop by my mini online seminar How Retirees and Pre-Retirees Can Potentially Avoid Going Broke While Keeping Their Nest-Egg Secure! Tons of great information and bonus is it is 100% COMPLIMENTARY!
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