RECONSIDER IF YOU'RE PROCRASTINATING YOUR LONG-TERM CARE PLANNING
You might want to reconsider if you're procrastinating planning for long-term care. More than 66% of those reaching at least 65-years-old will need some form of long-term care. One of the main challenges is figuring out how to pay for living longer with rising costs and life expectancies. From problems related to exorbitant health care costs to the strained and questionably solvent Medicaid and Medicare programs, it's easy to imagine how quickly your assets can be depleted should you be one of the many eventually needing long-term care.
The cost of both nursing home and assisted living services are rising twice as fast as inflation. A recent MetLife survey showed that a private nursing home room for the year averages $83,585 and assisted living averages $40,000. Not planning ahead can spell financial doom.
Some assume Medicare or Medicaid will be their safety net. Just keep in mind that experts are now predicting that Medicare could run dry by 2017. Even if it remains solvent, it typically only covers 20% of long-term care costs. State Medicaid programs are increasingly adopting more stringent rules. Experts have predicted it will soon become a last resort, limited coverage payer as many states struggle with affordability.
Insurance is one way that many experts recommend individuals plan ahead for their long-term care needs. Long-Term Care insurance (LTCI) is generally the most cost effective insurance option. Such a policy can be obtained to cover homecare, a nursing home bed, or assisted living and generally costs around $3,000 to $5,000 a year.
More and more baby boomers are obtaining LTCI, mainly from their experiences watching their own elderly parents completely deplete their savings due to the unexpected high costs of long-term care. However, demand vs. availability is complicated. Many long-term care insurers previously under-priced their policies and have subsequently been forced to either exit the market or raise premiums.
Most individuals actually prefer cheaper homecare to more expensive nursing home and assisted living facilities. The cost of homecare has remained relatively steady over the last decade, and the average hourly salary for a home health aide was $21 in 2010. Aside from the cost, the isolation and depression that many associate with an institutional setting often spurs them to arrange their affairs in a manner that will allow them to remain in their own home.
LTCI policies help to shoulder the burden of long-term care costs. However, much like Health insurance, you lose the money you've contributed if you don't use the policy. Although the ability to customize the policy can make it fairly complex, it does give you the ability to decide the start, waiting periods, and how you pay. Again, do keep in mind that the cost of LTCI is rising. Some experts advise that LTCI be bought in the consumer's 50s. Waiting longer could be risky since poor health could be a premium raiser or disqualification. Other recommendations include: Adding inflation benefits to cover rising rates; plans that cover full stays, usually around three years; and over-funding the policy to protect against the unexpected costs.
A few experts are starting to recommend hybrid policies that combine LTCI with death benefits from either a Life insurance policy or a deferred fixed annuity. Of course, the death benefit is lowered when you use the hybrid policy to pay for long-term care. The other downside is that hybrid policies generally carry higher premiums than a LTCI policy alone.
In closing, long-term care needs must be planned for now. Relying on shifting the costly expense of long-term care to adult children or entitlement programs simply isn't a viable option today. Experts recommend that individuals do aggressive financial planning, including having at least three sources of income to fund long-term care.