What Planning Ahead Can Do For Your Dream Retirement
As Americans, we don't like to talk about death and dying. We also shy away from conversations about how we would handle the expenses of a chronic illness or disability.
However, about 70% of Americans over age 65 will need some type of extended care service during their lives, according to the Department of Health and Human Services. Whether you have an aging parent or are nearing retirement age yourself, it is critical to make long term care a part of your financial plan.
When I discuss this topic with my clients, I share my own family's experience as a way to illustrate how the concept of "long term care" can refer to a variety of medical and non-medical services.
While it is usually associated with the elderly, anyone can need long term care at any age. It can range from assistance with daily activities -- like dressing, bathing, or driving to the store -- to intensive therapeutic and medical care. Long term care may be provided at home, a community center, an assisted living facility or a skilled nursing home.
I've seen each of my parents go through some form of long term care. When my mother was diagnosed with cancer at the age of 54, doctors said she had only about a year to live. About six months later, she lost the ability to care for herself and needed 24-hour care. My mother had an amazing group of friends and family who provided that care for the last six months of her life. It was incredible, but not everybody has that kind of support.
My father, who was diagnosed with lung cancer at age 80, went on hospice very quickly. Hospice is palliative care for people who no longer seek aggressive treatments. It helps manage symptoms and aims to make things as peaceful and as calm as possible during the transition toward death. My father was on hospice for several months and Medicare paid for this invaluable care.
Before he got sick, my father had been caring for my stepmother, who was legally blind and had dementia for the previous five years. After he died, the responsibility for my stepmother's care fell on my shoulders. Fortunately, my father had purchased a long term care policy for her about six years earlier.
We needed to find her an excellent nursing home near her church family and her friends. It took a couple of tries to find the right facility and we witnessed some disturbing levels of care during our search.
We finally found an excellent facility for the last five years of my stepmother's life, but that care ended up costing about a quarter of a million dollars. The blessing was that – thanks to my father's planning -- her long term care policy paid nearly every penny.
Long term care costs in the U.S. vary widely state by state and region by region. Genworth’s Cost of Care Survey reveals the average annual cost of nursing home care ranges between $89,297 and $100,375. The national average for care in an assisted living center typically is about half that cost. Home health aides cost an average of $18,200 per year, but rates for a licensed nurse are higher.
I'm a true believer in having frank discussions about long term care and I encourage my clients to begin the conversation when they are in their late 50's. You have two main options; you can self-insure or you can purchase long term care insurance.
People who self-insure depend on their personal savings and investments to fund any long term care needs. However, as we saw with my stepmother, costs can add up. If you would prefer not to burden your family's financial future with your care costs, you can buy a long term care insurance policy. These products range in price and scope and can cover all levels of care, from skilled facility services to in-home assistance.
Most long term care policies have a 90-day elimination period. You can think of that period as the deductible you have to pay before the insurance coverage begins. Then, there is a time period of two, three, or five years that is attached to the policy. There also are hybrid policies that are a combination of life insurance and long term care insurance.
Other options for paying for long term care are fixed annuities. Usually, an annuity pays a monthly benefit amount. However, if you need to draw on the account for long term care, the annuity begins paying out a monthly benefit that is double or triple the amount of the premiums you've paid.
No one wants to think about needing long term care. However, none of us knows what the future holds. I recommend that you plan for long term care just as you responsibly plan for other events in your life.
The best way to determine your own long term care options is to sit down with your financial advisor. At Oregon Pacific Financial Advisors, we can put together a customized plan that is right for you. Call (541) 772-1116 now to schedule your free consultation or visit our website at opfa.com.
For more on this and other topics, check out our podcast at opfa.com/podcasts.
Royal Standley is a Registered Principal offering securities through United Planners Financial Services, a registered broker-dealer and member FINRA, SIPC. Advisory Services offered through Oregon Pacific Financial Advisors, Inc., a Registered Investment Advisor. Oregon Pacific Financial Advisors and United Planners are separate companies.