The Dallas Morning News published an interesting article on long term care (LTC) insurance over the past a few days ago. It was an excellent reminder that LTC insurance should be a part of everyone’s financial planning, especially baby boomers. Boomers are retiring at a rate of 10,000 people a day and this number is projected to continue for the next 19 years. That’s over 3.6 million people a year!
There are three broad reasons boomers should be looking at long term care insurance; the likelihood you’ll need it, cost of medical care, and family trends that will impact you. Combined, the effect is overwhelming and simply ignoring it isn’t the answer either.
LTC Need: For anyone who buys a LTC policy at age 60, there is a 50% chance they will use their policy before they die. The odds are, half of all people retiring today will need to use a long term care policy, provided they have one, and none of us will be able to predict which group we’ll be in.
Medical Cost: The Institute on Aging estimates a couple retiring in 2010 will need $190,000 to cover out of pocket care for costs that Medicare doesn’t cover. If one of members of this couple needs nursing home care, the cost rises to $260,000. The vast majority of most baby boomers don’t have enough saved up to cover retirement, let alone long term care.
USA Today reported on April 1 that expenses for health care rose at a 5.6% rate for the fourth quarter of 2013. The normal rate of growth in health care expense is about 2.5% annually, however, the projection for the rest of this year 6.1%. If this rate of growth persists, the amount a person needs for nursing home coverage will rise significantly.
Family Trends: A generation ago, when a parent was unable to care for themselves, they either moved in with one of their adult kids or the adult kids platooned care for the parent. This is harder to do as families began to have fewer children, however, it is still the most common source of caregivers. Over 90% of long term care in the US is being provided by family members (either a spouse or adult kids). There are currently seven potential care givers for every senior, however, this number is expected to drop to two by 2050.
There is no denying that life waits for none of us and that at some point, our bodies may fail us no matter how invincible we may believe we are. I believe then, we have at least 3 questions we need to answer:
- What is your care plan?
- How will you fund it?
- What budgetary changes need to be made to fund it?
If getting older is inevitable, then what is your long term care plan? Do you expect your spouse, partner, or kids to care for you? If so, do they know this? Do you want to be cared for in your home by healthcare professionals? At what point are you willing to enter an intermediate or long term care facility? These are just a few of the questions each of us needs to answer and develop a plan for. This plan needs to be worked through with those closest to you and communicated with your family. Even in this stage of life, it’s still your life.
How will you pay for your care? Will you do so out of your retirement funds or investments? Will you need to sell your home and if so, how will that impact your spouse or partner’s retirement and their long term care? Do you need to consider long term care insurance? Financing your long term care should be as important a part of your financial planning as your retirement and estate planning.
If you’re in your 40’s or 50’s, you may still have time to build adequate funds to pay for the care yourself. If you’re in your 60’s and wondering if you have enough for retirement, then long term care insurance is probably your best option.
Lastly, do you need to change anything in your lifestyle now to meet the financial impact long term care, and even retirement, may require? Would downsizing your home, going with a more fuel efficient auto, or selling a vacation home help you get there? This is the time to sit down with your financial advisor and outline a plan with them.
How are you planning for your long term care? Share what you’re doing with us, as well as any questions or comments you may have in the comments section of our blog or on our Google + and Facebook pages. I’d love to hear from you!