1: Someone turning 65 today faces a nearly 70% chance of needing long-term-care services during their remaining years, according to government data.
2: Some advisors recommend a hybrid solution — a life insurance policy combined with long-term-care coverage.
3: Self-insuring, which means relying on your own assets if and when you face paying for that care, is also an option.
There’s an expense lurking on the horizon for retirees that is largely unpredictable but likely: Long-term care.
With premiums skyrocketing on insurance policies designed to cover that cost, financial advisors are turning to a variety of other strategies to help clients prepare for a day when they might need help with daily living activities such as eating and bathing.
“The fact is we’re a country that excels at prolonging and extending life,” said Matthew Brennan, a certified financial planner and partner at Acorn Financial Services in Reston, Virginia. “The result is that the costs of care later in life, and the duration of the care, are lasting longer and longer.”
Someone turning 65 today faces a nearly 70% chance of needing LTC services during their remaining years, according to the U.S. Health and Human Services Department. On average, women need care longer (3.7 years) than men (2.2 years).
Related monthly costs can be eye-popping: a median $4,000 for care at an assisted-living facility ($48,000 yearly), $7,400 for a semi-private room in a nursing home ($89,000 a year), $4,200 for a home health aide ($50,400 annually) and $4,000 for homemaker services ($48,000 a year).
And, Medicare — relied on by most retirees — doesn’t cover LTC. (Skilled nursing care and rehabilitative services do get limited coverage related to certain hospital stays.)
For standard health care alone in retirement, the average 65-year-old couple will spend $285,000, according to an estimate by Fidelity Investments. LTC expenses would be
For advisors, it means looking at the probability of a particular client needing care eventually — genetics and lifestyle can factor in — and evaluating available resources to recommend an option.
Depending on the specifics of your situation, it could make sense to purchase some form of insurance or to self-insure — that is, rely on your own assets — to fund the unpredictable costs related to LTC. Outside of that, leaning on family members or spending down (or shielding) assets to qualify for Medicaid-sponsored nursing-home care are options.
“It very much comes down to your personal situation, family history of needing long-term care and preferences for how and where you might receive care if you need it,” said CFP Katherine Fibiger, a partner and wealth advisor at Stratos Wealth Advisors in Westport, Connecticut.
Even then, it’s tricky to pinpoint a dollar amount involved. And, average costs can vary widely from state to state.
Niv Persaud, CFP and founder of Transition Planning & Guidance in Atlanta, recently estimated an LTC price tag of $300,000 for a female client whose husband has already passed away. The amount includes three years of in-home care, two years in assisted living and three years in a nursing home.
“The number of years in each level of long-term-care service is a guesstimate, since we really don’t know,” Persaud said.
The most straightforward solution — LTC insurance — has become too expensive a proposition for many consumers, contributing to a 60% drop in sales since 2012, according to the LIMRA Secure Retirement Institute. With claims exceeding expectations, many insurers also have fled the space.
“We’ve seen premiums double or triple in the last six or so years on policies issued in the early 2000s,” Brennan said.
The average annual LTC premium cost for a healthy 55-year-old couple is $3,050, according to the American Association for Long-Term Care Insurance. The value of benefits when they reach age 85 would be $773,000
In 2011, by comparison, $2,350 per year for a couple that age would have come with average benefits of about $800,000 at age 80. In other words, the cost was lower and the promised benefits were greater.
For clients with existing policies whose premiums are becoming unmanageable, it’s worth trying to negotiate with the insurer, Brennan said. For example, in exchange for keeping a lower premium, you could try to lower the policy’s built-in inflation adjustment, or reduce the maximum per-day benefit or duration of those benefits.
Some advisors recommend that clients consider a hybrid policy that combines life insurance with LTC coverage. That can be done through a new purchase or by converting an existing policy — term or whole — to the option.
“If you’re going to have life insurance anyway, you can see if you can protect against long-term-care, too,” Fibiger said.
While the particulars of each policy vary, the idea is that you can tap the death benefit during your lifetime if you need it to pay for LTC. Doing so reduces the amount that your heirs would inherit. Some hybrid options provide LTC coverage beyond the death benefit.
However, you generally need to be insurable — that is, pass medical underwriting — just as with a straight LTC policy.
You also typically need a pot of money to fund it. Some insurers ask for an upfront lump sum, while others allow you to spread the premium payments over a set number of years.
Also be aware that “chronic illness” riders are different from those for LTC.
“It’s contingent upon your condition being permanent,” Fibiger said. “Long-term care riders are less restrictive.”
Not all advisors are sold on these hybrid policies.
“We’re highly skeptical of the sustainability of the hybrid model,” Brennan said. “There’s not a ton of data out there about whether those paying strategies work over time across a large data sample.
“I think it’s not something we’d ever advise someone to rely on solely,” he added.