Planning for Long-Term Care: A Comprehensive Guide for Individuals and Couples
Author: Jennifer Climo
Long-term care planning is an essential aspect of financial planning, particularly for individuals and couples who have accumulated significant assets. As life expectancy continues to rise, so does the likelihood of needing long-term care services at some point. These services can be costly and may significantly impact your financial security and legacy if not planned for appropriately. This blog will discuss key considerations for planning for long-term care, including long-term care insurance, continuing care retirement communities, in-home care options, and other viable alternatives.
Understanding Long-Term Care
Long-term care refers to a range of services and support needed for individuals who have difficulty performing daily tasks or have cognitive impairments. These services can be provided in various settings, such as in-home care, assisted living facilities, or nursing homes. Long-term care needs can arise from chronic illness, disabilities, or the natural aging process.
The Cost of Long-Term Care
Long-term care can be expensive, especially for individuals and couples who desire high-quality care services. According to Genworth's 2022 Cost of Care Survey, the national median cost of a private room in a nursing home was $108,400 per year, while the median cost for a one-bedroom unit in an assisted living facility was $54,000 annually. These figures underscore the importance of planning for long-term care costs to protect your financial well-being.
Long-Term Care Insurance
Long-term care insurance is a policy designed to cover the costs of long-term care services. Policyholders pay premiums in exchange for a daily or monthly benefit that can be used to pay for care services when needed. Some policies also offer inflation protection, which increases the benefit amount over time to account for the rising cost of care.
- Protection from high long-term care costs: With long-term care insurance, you can offset the financial burden of long-term care services, protecting your assets and income.
- Customizable coverage: Policies can be tailored to suit individual needs, including the duration of coverage, daily or monthly benefit amounts, and waiting periods.
- Tax benefits: Premiums for qualified long-term care insurance policies may be tax-deductible, and benefits received are generally not considered taxable income.
- Premium increases: Insurers may raise premiums over time, potentially making coverage less affordable.
- Underwriting: Applicants must undergo medical underwriting, which may result in higher premiums or denial of coverage based on health status.
- Use-it-or-lose-it nature: If you never need long-term care services, the premiums paid may not provide any direct financial benefit.
Continuing Care Retirement Communities (CCRCs)
Continuing Care Retirement Communities are residential communities that provide a continuum of care, from independent living to assisted living and skilled nursing care. Residents usually pay an entrance fee and a monthly fee, which may increase as their care needs change.
- Continuity of care: CCRCs allow residents to access various levels of care within the same community, reducing the need for relocation.
- Socialization and amenities: Residents can enjoy an active lifestyle, socialize with their peers, and take advantage of the amenities and activities offered by the community.
- Predictable costs: The entrance fee and monthly fees can provide a degree of cost predictability and may cover a portion or all of the long-term care services needed.
- High upfront cost: The entrance fee can be substantial, potentially limiting the pool of individuals who can afford to join a CCRC.
- Limited flexibility: Once committed to a CCRC, it may be challenging to move to another community or opt for a different care option.
- Financial viability: The financial health of a CCRC is essential to consider, as it may impact the quality of care and services provided. Research the community's financial stability and track record before making a commitment.
In-home care refers to care services provided within the individual's home. Services can range from non-medical assistance, such as help with daily activities, to skilled nursing care. In-home care can be an attractive option for those who prefer to age in place and maintain their independence.
- Comfort and familiarity: Receiving care in one's own home can provide a sense of comfort and familiarity, which may contribute to overall well-being.
- Customizable care: In-home care services can be tailored to the individual's needs and preferences, allowing for flexibility in the level of care provided.
- Potential cost savings: Depending on the type and frequency of care needed, in-home care can be more cost-effective than facility-based care.
- Limited availability: Access to high-quality in-home care providers may be limited in some areas, particularly in rural regions.
- Caregiver burnout: Family members who provide care may experience caregiver burnout, impacting their physical and emotional health.
- Home modifications: Aging in place may require home modifications, such as installing grab bars or wheelchair ramps, to accommodate changing needs and ensure safety.
Other Long-Term Care Planning Options
Aside from the options mentioned above, individuals and couples can explore other alternatives for long-term care planning, such as:
- Hybrid life/long-term care insurance: These policies combine life insurance and long-term care coverage, providing a death benefit if care is not needed or long-term care benefits if required. The long-term care benefits are often not as robust as with a stand-alone policy, and the premiums may not be tax deductible.
- Self-funding: Setting aside funds in savings or investments specifically for long-term care expenses, allowing for more control over how the money is spent on care services.
- Government programs: Medicaid, the federal-state program that provides health coverage for low-income individuals, may cover long-term care services for those who meet eligibility criteria. However, relying solely on Medicaid for long-term care may limit care options and quality. This is also not usually a viable option for those with outside assets.
- Veterans' benefits: Eligible veterans may access long-term care services through the Department of Veterans Affairs (VA), although availability and scope of services may vary.
Planning for long-term care is a critical component of a comprehensive financial plan. By considering the various options available, such as long-term care insurance, continuing care retirement communities, in-home care, and other alternatives, individuals and couples can make informed decisions that align with their needs, preferences, and financial goals. Consulting with a financial advisor and discussing long-term care planning early on can help ensure a secure and comfortable future while preserving hard-earned assets and wealth.
If you need help with your long-term care planning or financial planning in general, please reach out to our team. You can also learn about our team here.
This is not to be considered investment, tax, or financial advice. Please review your personal situation with your tax and/or financial advisor. Jennifer Climo, CFP®, CPA, MSFP is an advisor at Milestone Financial Planning, LLC, a fee-only financial planning firm in Bedford, NH. Milestone works with clients on a long-term, ongoing basis. Our fees are based on the assets that we manage and may include an annual financial planning subscription fee. Clients receive financial planning, tax planning, retirement planning, and investment management services, and have unlimited access to our advisors. We receive no commissions or referral fees. We put our clients’ interests first. If you need assistance with your investments or financial planning, please reach out to one of our fee-only advisors.