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How To Protect Your Retirement

As many people approach retirement they begin to fantasize about what their lives will look like without having to wake up and go to work every day. Would you take that dream vacation? Spend some more time with the grand kids? Perhaps finally getting the chance to tackle your list of books you never had time to read? While retirement is a chance to begin a new chapter, that does not mean it comes without financial risks. One of the most troubling is the potential for needing long-term care. According to longtermcare.gov an individual turning age 65 has almost a 70% chance of needing some form of long-term care service at some point in their life.1 With the costs of healthcare continually on the rise, what have you done to prepare to ensure you and your family are taken care of if the need arises?

How much does long-term care cost?

Long-term care can be incredibly expensive. According to Senior Homes it can cost up to $316 per day in New Hampshire.2 To put that another way, that's about $9,500 a month, and just shy of $115,000 a year! If you needed care for 3 years, that adds up to just shy of a whopping $350,000! These numbers will take an enormous bite out of the vast majority of retirees’ savings. Even if someone can afford the cost of long-term care out of pocket, the cost of providing care may not leave enough assets for a surviving spouse to live on after passing. Long-term care is not just about providing for you, but about protecting your loved ones as well.

What can I do to protect myself and my family?

It is a common misconception that just because you are enrolled in Medicare you are covered for long-term care costs. In fact, Medicare does not cover long-term care, and unless you have purchased a separate policy you would be stuck paying for services out of pocket. Purchasing a long-term care policy, even a modest one, could take the edge off the enormous costs associated with this form of care. However, because of the number of individuals who will require some form of long-term care, and the high costs associated with the care itself, it makes the insurance a little pricey. According to the American Association of Long-Term Care Insurance the average cost of insurance is $2,466 and $3,381 per year for couples aged 55 and 60, respectively.3 The policies used in this example were for a $150 daily benefit for 3 years with 3% compounded inflation. As noted before, the average cost of a nursing home facility in New Hampshire was over $300, so this policy would cover approximately half the cost. If you purchased a similar policy for $300 a day benefit you could expect to pay much more than the averages.

Should I wait to get insurance until I'm closer to retirement?

That's a common question we get when we discuss long-term care insurance with our clients. The cost of the insurance dissuades many people from getting insurance now and putting it off until later. However, the risks of waiting to become covered can be substantial. As noted before, the cost of paying for long-term care can be enormous and the insurance company is taking the risk that they will have to dole out that money to cover you if the need arises. To protect themselves, insurance companies have strict medical qualifications for someone to even be approved to purchase a policy. The risk to waiting is if you develop a disqualifying medical ailment between now and when you decide to apply for insurance, you may never get the opportunity to buy coverage. Not only will the insurance company scrutinize your health, but they will also review your family's medical history. We've seen clients be denied for parents who have developed Alzheimer's Disease when they themselves have no indication that they will also be subject to the disease. The longer you wait the greater chance there is for a medical issue to develop, and your opportunity to become covered can vanish.  

Summary:

Long-term care can be one of the most expensive aspects of retirement and it is becoming all too common. One way to mitigate the risk is to purchase a long-term care policy to help cover all, or some, of the costs if you find yourself needing these services. This can ensure that you and your family have some sort of protection. However, the longer you wait to apply, the greater chance there is that you can be denied for coverage by the insurance company. If you are interested, it is best to apply sooner rather than later to at least get an idea of what the costs might be. With that being said, long-term care insurance is not for everyone. It can be quite expensive, so it must be something you are able to afford. Also, if your assets are substantial enough to pay for care out of pocket, you may not need a policy. Talk to your fee-only financial advisor to see if a policy is in your best interest.

1 https://longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html

2 https://www.seniorhomes.com/s/new-hampshire/nursing-homes

3 http://www.aaltci.org/long-term-care-insurance-rates/