CommentaryJuly 2019 Commentary

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Will the Costs of Long-Term Care Wipe Away Your Future?

Have you ever heard the fable of the ant and the grasshopper?  The grasshopper played all summer long, while the ant worked to prepare a home and store food.   When winter hit, one was ready and the other wasn’t.  The fable still rings true today.

Once upon a time, in what seems like another universe, people (ant personalities and grasshopper personalities alike) could buy relatively affordable long-term care insurance for an affordable price.  This allowed them to use their assets to live a comfortable lifestyle without worrying they would need significantly more resources later in their retirement years than in their earlier ones.

Then significant changes occurred.  Interest rates stayed low for a long time, making it harder for insurance companies to make enough money on the premiums paid to be able to cover their risks.  People started living longer- and many of them were living longer and sicker at the same time.  Demand for care started increasing as the demographics changed.  Finally, the costs of quality care started rising very quickly.  Insurers stopped issuing such rich policies, and people started scratching their heads to determine whether the premiums were worth the risk.  Couple that with natural fears and denial about aging, and we’ve now got a Baby Boomer population that is woefully unprepared for their future long-term care costs.

Annually, Christine Benz completes a study on Long-Term Care statistics for Morningstar.  The next study comes out in August, should you want to check it out.  In 2018, she states some facts you need to be aware of:

  • 52% of people turning 65 will need some sort of long-term care services in their lifetime.
  • While 57.5% of individuals turning 65 between 2015 and 2019 will spend less than $25,000 on their long-term care, 15.2% will spend more than $250,000.
  • $85,775 is the median annual nursing-home cost in a semi-private room for 2017. If you want private, the median is $97,455.  (Location is everything- in Manhattan, that private room average is $215,770; in Monroe, Louisiana it is $51,500.)
  • 83% of people needing care must rely exclusively on friends and family to provide care.
  • 51% of long-term care services are provided by Medicaid; and it’s expected to increase by 50% between 2016 and 2026.
  • In 1990, 380,000 individual long-term care policies were sold. In 2014, only 129,000 policies were sold.

Don’t read these and go into fight, flight or freeze mode.  The point is not to shock you- it’s to help you plan.  Here’s what you need to know:

  • Medicare doesn’t pay much for long-term care costs for most seniors- Medicaid does, but in order to qualify for Medicaid, your personal assets must essentially be depleted first. While there are formulas for married partners, it can be devastating to both.
  • Choices for care paid for by Medicaid are extremely limited, and with funding tightening, the care provided is often less than what most people would deem “adequate”. Staffing shortages are prevalent.
  • For people with resources, there are many more choices (many are AMAZING), but advanced planning can make your resources go much further and give you more of what is important to you for the money.
  • For people with resources, but limited or no long-term care insurance, it is critical that you reserve a pot of money to pay for these expenses down the road if you don’t want to be limited to choices provided to those who have to rely on government provided Medicaid.
  • If you are over the age of 50, you should start looking at Long-Term Care Insurance or hybrid policies (those that may have a death benefit included) to help create a pot of money to pay for your care.
  • If you are over 70 and have had some health issues, or over 80 even if you have not yet had any, it’s time to start planning for an emergency care situation. Know what resources are near you to help you with in-home or assisted living care.  Find resources to help you plan and navigate that process should it occur.  Don’t wait until there is a crisis to make those decisions.

No one wants to think about this.  It’s scary and sad.  So is thinking about having your house burn down- but you have a plan for how you would pay for that.  And the likelihood of your house burning down is substantially lower than of you needing assistance in your later years.  Putting a plan together can make all the difference in not only your quality of life, but also the quality of life of those around you.  Anyone with aging parents can tell you about this, if you haven’t experienced it yourself.

We’re talking risk management with our clients all summer long.  Take some time this summer to work on a plan like the ant would, and not just play like the grasshopper.  Just like in the old fable, the preparation may pay off greatly.

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The Planned Approach, Inc.

420 W. 98th Street
Kansas City, MO 64114
(816) 941-0098

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The Planned Approach, Inc.

420 W. 98th Street
Kansas City, MO 64114
(816) 941-0098

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