No one likes to think about longterm care, and we definitely have more pleasant things to contemplate than how we’ll pay for the care we’ll need as we get older.
But, just like paying taxes and the Warriors in the finals, it’s nearly 100% certain that we’ll need some form of longterm care when we reach our senior years.
The good news is that we have several options for how we want to pay for this:
We can save and set aside money for our long-term care. That means we should plan to put away between $114,000 and $400,000 depending on our sex, age and extent of the care we plan for.
If you’re planning on the government taking care you, you ‘ll need to compromise on a few small things. One thing is that you’re willing to give your entire life savings and all of your assets to a long-term care facility.
The second thing is compromising the quality of care. Believe me when I tell you that it’s downright scary where you have to go when you don’t have money to pay for a decent facility. I wouldn’t wish that upon anyone.
Remember how we talked about how the government owes $1 trillion in Medicare/Medicaid? By 2020, that number is expected to jump to $1.5 trillion, which further proves that Uncle Sam simply does not have the money to take care of everybody’s long term care needs. It’s up to YOU to plan and save.
Better long term care solutions:
Enough fear and worry – let’s actually DO SOMETHING to plan and prepare for your long term care needs. I promise you that with just a little time and a modicum of financial discipline, you’ll be able to sleep well at night instead of worrying about what happens when you get older or fall ill.
Here are a few options that we can consider for your long term care planning:
Long term care insurance.
The cheapest (and best) way to provide care when you get older is long term care insurance, particularly if your family is not able to take care of you full time. With long term care insurance and some cash savings, you’ll be able to have the best assistance and quality of life.
One reason this is optimal is that insurance carriers pay on time, while the government takes eons to pay for your care. I hate to say it, but the government would rather have you die before they start shelling out huge chunks for your care. Instead of you being a revenue generating tax payer, the government now sees you as a drain on the system.
There are three types of long term care insurance:
1. Asset-based long term care insurance
2. Traditional long term care insurance
3. Life insurance with a long term care rider
Asset-based long term care insurance.
Asset-based long term care insurance is set up with you funding
The great thing about this money is that it is liquid, so you can withdraw money from the policy if you ever need to. And if you pass away without using the benefit, they can give your family the cash. This is a great option if you have cash in the bank just sitting there with little or no rate of return. (There’s no reason for money to just sit in your bank beyond three to six months of emergency funds.)
Traditional long term care insurance.
Traditional long term care insurance is funded as you pay a recurring premium. (Depending on your age and the state you reside in, you can usually pay until you’re 65 years old.)
Once you reach the point of experiencing two of the six ADLs (we talked about those earlier), you can then file a claim for long term care assistance.
The premiums you pay are based on age. The younger you are, the cheaper it is, based on the daily or monthly benefit you want and a few other options. Do you want the claim to kick in after 30, 60, 90, 180, or 365 days? The longer the waiting period, the cheaper it is (which is sort of like a deductible on your auto insurance).
On average, people choose 90 days. Another consideration is how long you want coverage to continue. The coverage period can be for one, two or four years, and few carriers will even provide lifetime coverage.
Another important factor that comes into play with premiums is the inflation rider. If you buy long term care insurance in your 50s (which I suggest since you might not use the benefit for 20-30 years), the cost of health care 20-30 years from now is certainly not what it is today. So, this rider allows you to build in consideration for inflation, increasing your benefit 1%, 2%, or 5% a year. It’s a great way to fight the increasing cost of health care.
Traditional long term care is the cheapest way to pay for long term care planning. Unfortunately, the premiums are not guaranteed for life. The insurance company can raise the rates if they need to in order to stay solvent. If they do, they will ask your state insurance commissioner and they will have to get approval.
Also, traditional long term care insurance can be tax-deductible. The tax deduction is based on your age, relationship status, income and total health care expenses. Talk to your tax professional about this.
If you have an H.S.A (Health Savings Account), use it to fund your long term care policy. The money you put in the account is tax deductible and the benefits you receive are tax free. This might be the best tax law provision out there for individuals and families!
Life insurance with long term care rider.
When you purchase life insurance, you can buy additional options, or bells and whistles, as I call them, with the policy. These bells and whistles are called “riders.” One of the riders you can buy is called a long-term care rider.
It works like this: if you get sick, the insurance company will pay out a portion of the death benefit while you are living to cover your long term care needs. The great thing about using this strategy is that it’s not like traditional long term care insurance, where if you don’t use it, you lose it.
The worst-case scenario is that your heirs receive the death benefit when you pass away. Life insurance premiums are also guaranteed, so the rates will never go up, unlike traditional long term care insurance.
Of course, the premiums to life insurance for long term care riders are higher than traditional long-term care. But if you want money to pass down to your heirs and additional protections, this is a great alternative instrument.