We’ve all seen the parade of studies in recent years pointing to the steady incremental rise in average life expectancy for individuals in developed nations. For a married 65 year-old couple today, there’s a nearly three-in-four chance (72%) that at least one of them will live beyond age 85. Yet despite the prospect of longer, healthier lives, longevity can also serve as something of a double-edged sword.
The simple fact is that longer lives bring with them a significantly greater likelihood of a catastrophic health event – something that without careful planning could potentially wipe out a lifetime’s worth of savings. According to the U.S. Department of Health and Human Services Council on Aging, seven out of every ten Americans over age 65 will require long-term care at some point during their life. For women, the average duration of care will be 3.7 years and for men 2.2 years.1
With an average semi-private nursing home room costing more than $80,000/year nationally ($105,000 in Pennsylvania), and around-the-clock home health care costing even more, long-term care costs could easily run in excess of $500,000.2 Keep in mind that Medicare only covers a tiny portion of these costs (mostly related to short-term rehabilitation).
How will you pay?
Individuals without any sort of long-term care coverage will need to either draw down their assets to pay for any long-term care expenses as they arise (known as self-insuring) or else rely on family members to provide the needed level of care.
Alternatively, you could explore traditional long-term care insurance. While these policies tend to provide the maximum benefits available, they also come with several major drawbacks. Annual premiums tend to be high and are likely to increase the older you get. If for some reason you are unable to pay future premiums, the policy becomes void. And since traditional long-term care insurance has no cash value or death benefit, if you don’t ever need long-term care, the money you paid into the policy is forfeited.
In recent years, however, several new insurance solutions have emerged to help alleviate some of the significant shortcomings associated with traditional long-term care insurance. Today there are long-term care riders which can be added on to certain universal life insurance policies or fixed annuities to provide long-term care benefits. While the specifics vary from policy to policy (or contract to contract in the case of annuities), typically these solutions guarantee the early payout of some portion of the policy or contract’s death benefit to cover any long-term care costs. Any unused benefits are then distributed to your beneficiaries as a federal tax-free death benefit. Premiums for these riders tend to be fixed, and some even offer a return of premium feature if you find yourself unable to keep up payments.
While the benefits associated with these riders are generally less robust than traditional long-term care policies, the greater flexibility, cost certainty, and legacy potential they provide may make them an attractive choice for many people approaching retirement or recently retired.
The longer you wait the fewer your options
Like retirement planning, the sooner you address long-term care planning the more choices and flexibility you will have in finding a solution that addresses your needs and concerns. Although BLB&B Advisors does not sell any long-term care insurance or related products, your BLB&B financial advisor is still able to provide you with general guidance, advice, and alternatives in this area. Also, if you wish, your financial advisor can connect you with several long-term care professionals who can help you better understand the features and benefits of the various long-term care options now available. Your BLB&B financial advisor can also work with you to estimate how much you will need to safely put aside in order to cover out-of-pocket healthcare expenses throughout your retirement.3
1 U.S. Department of Health and Human Services, Council on Aging, 2016
2 Genworth Cost of Care Survey, April 2016
3 Neither BLB&B Advisors nor your financial advisor receives any referral fee or other compensation for connecting you with a long-term care professional.