SHOW NOTES: 2020-07-2 MiM

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Last Week’s Question of the Week: What is the earliest age that you have to be to file for or receive a social security spousal benefit? Is it age 62 or age 72?

ANSWER: You must be age 62 to file for or receive a spousal benefit.

HOST: Aside from helping people with their retirement investments, I know that your firm works in the capacity of financial planners and also helps explore areas such as long-term care and how those costs could potentially affect their assets.

KLAAS FINANCIAL: Yes, a large part of our job as financial planners is mitigating the financial risk of how long-term care support and services could possibly impact your retirement portfolio.
(Disclosure: we are licensed to sell insurance products, so we understand their relevancy, however, we do not offer long-term care insurance to our clients.)

If there is a single unsolved problem in the retirement plans for many middle- and upper-middle-income adults, it’s what to do about long-term care costs later in life. When hearing the words “long-term care,” everyone has their own mindset regarding its purpose and relevance in their retirement plans. There are some misconceptions about who will pay for what, and how much they will pay for long-term care.

One thing we hear a lot is that people think that Medicare/Medicaid will pay for their long-term care.

This is not accurate. Medicare helps to pay for your recovery in a skilled nursing care facility after a three-day hospital stay and will cover the total cost of skilled nursing care for the first 20 days, after which you’ll pay $170.50 coinsurance per day (in 2019). However, they will only cover these costs for a maximum of 100 days. After those first 100 days you will pay 100% of the costs incurred from staying in a skilled nursing facility (11/2018).

And if you are thinking Medicaid will pay for it, it’s unlikely you’ll qualify for assistance. Since Medicaid is means-tested, your assets must be depleted to a very low level before the government will step in and help you pay for your LTC bills. This level varies on a state-by-state basis; you should contact your State Medical Assistance office to see whether you qualify for assistance.

HOST: How expensive have long-term care costs become? And on the other side of things, how expensive are policies to help with these costs today?

KLAAS FINANCIAL: Great question. According to a 2019 Genworth study, monthly costs for long-term care range from $4,385 for a home health aide up to $8,517 for a private room in a nursing home. Many people simply don’t have the resources to budget for those kinds of expenses especially since no one knows how long this expense can possibly linger.

As far as cost of policies, this is dictated by your age, health, carrier and type of policy. For traditional LTC policies, according to the American Association for Long-Term Care Price Index Survey, the average premium for a couple age 60 today is $3400 per year (combined).

  • Traditional LTC Policies: The way these traditional long-term care policies work is if you never need it, then the premium spent is gone forever. You will hear people say these are “use it or lose it.” These policies sometimes can be more difficult to qualify for but may be more reasonable to afford.
  • HYBRID LIFE/LTC Products: With these policies, if you never need to use the care, the benefit can come back to you in the way of a refundable premium or eventually a death benefit to your beneficiary or estate. These policies tend to be easier to qualify for, but also more expensive for premiums.

So again, talking to your financial advisor or a LTC specialist is an important step to make sure you have evaluated all risks for you and your family.

HOST: If I look at getting long-term care insurance, doesn’t it only cover nursing facilities? And what if I think I won’t even need care?

KLAAS FINANCIAL: It is true that some of the older traditional long-term policies in which your parents are enrolled may just cover a stay at a nursing home, so check their policy to get the details. Be pro-active on this before they may need to utilize their policy.

Most new LTC insurance policies today (about 99% of them) generally cover home health care, hospice care, respite care, traditional long-term care facilities and Alzheimer’s care facilities. In short, an LTC policy allows you to seek the type of care you’ll need without taking too much from your retirement portfolio — whether the care be in a nursing facility or in your own home.

Other questions to consider:

What if you think that you don’t need care?
No one can say with any certainty whether they’ll need LTC, and it’s certainly possible that you may not end up needing care. But the odds that you will end up requiring some form of LTC may be significantly higher than you think.

Morningstar released a report in 2018 that tells us that persons turning 65 today have a 52% chance of needing long-term care support and services (women: 58%, men: 47%), and the average person needs care for two plus years. With the cost of care exceeding six figures annually in some parts of the country, it is an expense that can rapidly deplete your savings if you need prolonged care and don’t have coverage.

Am I too young to buy a policy?
In order to avoid paying premiums before making use of the benefits, the temptation is to put off purchasing a policy for as long as possible. This opens you up to the risk of seeing your premiums greatly inflate, or worse, becoming unable to get coverage because of pre-existing conditions. Just as you wouldn’t be able to purchase homeowner’s insurance if your home was on fire, you won’t be able to purchase LTC insurance if you already need care, or perhaps your cognitive skills have begun to already fail.

If the possibility of securing a LTC policy makes sense for you, we recommend reviewing what is available and perhaps consider buying it while in your 50’s or early 60s. So again, talking to your financial advisor or a LTC specialist is an important step to make sure you have evaluated all risks for you and your family.

HOST: If I do eventually need care, can’t I depend on my family to provide it?

KLAAS FINANCIAL: Sure, the truth is that 65% of adults needing long-term care today rely on friends and family to provide it. It is important to realize which family members are likely to provide this care. In reality:

  • 25% of the caregivers today are considered “sandwich generation” caregivers who provide care to children and older adults. This obviously can be difficult to maintain for families involved.
  • 34% of the caregivers are 65 and older. Think of this, if you are 85 years old needing care, you may be having your 65 year old retired child, caring for you which physically may not make a lot of sense.
  • 65% of the caregivers are female. In other words, are you thinking your sons may be able to leave their job to care for you?

HOST: What about the idea of self-funding our own long-term care costs?

KLAAS FINANCIAL: Great question. Again, reviewing the statistics:

  • 57.5% of individuals turning 65 between 2015 and 2019 will spend less than $25,000 on long-term care during their lifetimes. However,
  • 15.2% of that same age span will spend more than $250,000 on long-term care.
    Many times, high-income, or high-net-worth people can successfully plan to self-fund long-term care costs, and even middle income earners may choose if necessary to use nonportfolio assets, such as a home sale, to cover any long-term care costs.

  • This Week’s Question of the Week: According to a 2018 Morningstar report on Long-Term Care, what percentage of adults today rely on friends and family to provide their long-term care? Is it 10% or 65%?

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    Catch C.J. Klaas and Maleeah Cuevas on Money in Motion every Thursday on Madison's 1310 WIBA from 8:05-8:35am.