Covering care costs in retirement
Joel Dresang: Adam, when you talk with people about retirement planning, you talk about covering the costs of prolonged care. Why is that so important?
Adam Baley: Well, it’s so important because retirees need to understand that long-term care costs in retirement can consume a meaningful amount of their life savings, if not all. So you’ve got to make sure that you have a plan in place and understand how your retirement plan is going to handle those costs.
Joel: Essentially, they can cover those costs through the savings they have, through Medicaid – which is government insurance when you go through your savings – and also, through long-term care insurance. Is that right?
Adam: Yes. So those are essentially the three options to cover the cost of care. You know, the real purpose of long-term care insurance isn’t to insure against the cost of the medical care. The real purpose is about ensuring your estate and your savings last as long as you do – and that there’s savings left over for your heirs or for your spouse.
And I find that retirees often make the assumption that Medicare is going to cover the cost of long-term care, and that’s simply not true. You’ve got to remember that Medicare’s only going to cover up to the first 100 days of long-term care costs if, and only if, it was preceded by a three-day stint in the hospital.
Joel: What are some of the main points you’d want people to know about long-term care insurance?
Adam: Well, you’ve got to know what it costs, and you’ve got to know how it’s priced. When it comes to cost of the insurance, we’re talking about the annual premium.
And there are a few key components that go into calculating that. And it really comes down to your age, your health, your gender and how much benefits you want to receive.
The older you are when you apply for a policy, the more expensive it can be. Obviously, health can impact what it costs for the insurance. And then again, gender. Statistically, women live longer than men, and they receive more benefits. Therefore, policies for women tend to be a little bit more expensive.
Joel: What sort of considerations should you make in determining how much coverage to get?
Adam: Well, you’ve got to pull together all your financial resources. Look at your assets. Look at your pension income, if you have a pension. Look at Social Security. And total up how much those assets can produce, and then only seek coverage over and above what your resources are unable to produce.
Joel: So, private long-term care insurance isn’t for everyone, but is there a rule-of-thumb to help guide people to figure out when they should consider insurance?
Adam: There’s no one-size-fits-all solution, but it can make sense for a lot of people. And there is a rule of thumb. It really depends on assets.
If your family has assets anywhere between, say, $500,000 and $5 million, chances are, the insurance could be a good fit for you, and you ought to consider it as part of your retirement plan.
For families with assets in excess of $5 million, again the insurance might be a poor fit because when you pull together all of your resources, chances are, you can self-pay without having to worry about drawing down principal.
For families with assets underneath $500,000, insurance might not be a good fit because there isn’t enough in the way of assets to insure. Candidly, premiums could be expensive relative to your budget.
Joel: And your premiums aren’t guaranteed, right?
Adam: No insurance company out there is going to guarantee you that premiums are going to stay the same. And anybody who is considering a policy or even has a policy ought to be planning ahead that their premium could go up at some point in their life.
Joel: So, there’s a lot going on here, and it gets down to individual circumstances. We have some links to further resources in the article that you wrote on Landaas.com, but the main point is that people should be planning for covering those costs for prolonged care in retirement.
Adam: It is important to plan, and this is most certainly true for individuals as well as for spouses and couples.
You know, husbands and wives, you’ve got to talk about this. And make sure that no matter what your plan is, that your plan doesn’t leave vulnerable your spouse, and that you’re considering the possibility that one of you, if not both of you, might need prolonged care in retirement. You’ve got to have a plan. That’s the key.
Adam Baley is a registered representative and investment advisor at Landaas & Company.
Joel Dresang is vice president- communications at Landaas & Company.
Money Talk Video by Peter May
(initially posted July 29, 2015)
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