Introduction

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 your long-term care options and methods for paying for them.

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.

Long-Term Care Costs

Long-term care can be expensive, especially for individuals and couples who desire high-quality care services. According to Genworth’s 2024 Cost of Care Survey, the median cost of a private room in a nursing home was $127,750 per year, while the median cost for a one-bedroom unit in an assisted living facility was $70,800 annually. These costs increased dramatically for some New England states — residents of Massachusetts can expect to pay $186,515 for a private room in a nursing home and $108,696 for a one-bedroom unit in assisted living. New Hampshire residents can pay a little less, at $157,680 for a private room in a nursing home and $89,175 for a one-bedroom unit in assisted living.

These figures underscore the importance of planning for long-term care costs to protect your financial well-being.

Continuing Care Retirement Communities (CCRCs)

Continuing care retirement communities (CCRCs) are residential communities that provide a continuum of care, from independent living to assisted living and skilled nursing care, usually all in the same building or on the same campus. Residents usually pay an entrance fee (similar to the purchase of a home) and a monthly fee to cover services, dining, and later medical needs.

Advantages:

• 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.
• Dining: CCRCs include meals at an on-site restaurant.
• Fewer monthly expenses: A CCRC eliminates many household expenses such as repairs and maintenance, utilities, rent, mortgage, real estate taxes, etc.
• Elimination of most chores: A CCRC eliminates many household chores (both the time and the expense) such as housecleaning, cooking, food shopping, plowing, mowing, landscaping, etc.
• Part of the entrance fee and monthly fees are tax deductible as medical expenses.
• Insurance reimbursement: Assisted living or memory care costs are usually eligible for long-term care insurance claims.
• Flexible contract terms based on your needs: CCRCs typically have several different contract types, from Type A contracts with a higher monthly fee that never increases even when you need more care to Type C with a lower monthly fee in independent living that increases when you need more care.

The financial health of a CCRC is essential to consider, as it may impact the quality of care and services provided. Many CCRCs are nonprofit entities with public financial statements. Research the community’s financial stability and track record before making a commitment.

In-Home Care

In-home care refers to care services provided within the individual’s home. Services can range from nonmedical assistance, such as help with daily activities, to skilled nursing care. In-home care seems like an attractive option for those who prefer to age in place and maintain their independence. However, it is difficult to find qualified, affordable personnel to consistently come into your home. This option is fraught with turnover and is very expensive. When needed, 24/7 care can cost upwards of $7,000 per week in the Northeast! Also, aging in place may require home modifications, such as installing grab bars or wheelchair ramps, to accommodate changing needs and ensure safety.

In-home care can work well for you if your family members provide the care. However, in our experience, most clients do not want to rely on their children or other family members for their long-term care needs.

In reality, staying in the home is not realistic for most people over the long term, and can end up being the most expensive option.

Funding Alternatives

Aside from the question of what your long-term care plan should be, there is the important question of how should you pay for it?

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 over time to account for the rising cost of care.

Advantages:

• 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.

Disadvantages:

• Elimination period: Most policies today come with a 90-to-120-day period of time after eligibility in which no benefits are payable.
• 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. This is especially true if you eventually choose a Type A CCRC contract where long-term care is included in the monthly fee.

Other Funding Alternatives

Other ways to pay for long-term care costs include:

• 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.
• Qualified Lifetime Annuity Contract (QLAC): A QLAC can be purchased with IRA dollars and will pay you a stream of income starting at age 80 that can help pay for long-term care.
• Self-funding: Setting aside funds in savings or investments specifically for long-term care expenses allows for more control over how the money is spent on care services. Holding $300,000–$500,000 per person in an IRA can be a good strategy. The medical deduction from the long-term care costs can offset the taxes on the IRA distributions, resulting in major lifetime tax savings. This may result in higher Medicare premiums, but even so, the tax savings are substantial.
• Government programs: Medicaid, a state program under federal guidelines 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 more than $100,000 of assets. There are attorneys who will gift away your assets five years before you need care to make you Medicaid eligible; however, this does not usually result in the best care for you (but your heirs will be thrilled as it protects your assets for them).

Veterans’ benefits: Eligible veterans may access long-term care services through the Department of Veterans Affairs, although availability and scope of services may vary.

Conclusion

Everyone needs a long-term care plan. It is better to create your own than to have one created for you during a health emergency. A financial advisor can help you make decisions regarding your long-term care planning and how to pay for it. If you have any questions about long-term care or need assistance with your tax or retirement planning in general, please reach out to our team.