Last Week’s Question of the Week: According to Morningstar, what amount of retirement assets in the United States are currently held in Target Date Funds … more than 1 billion, or more than 1 trillion?
ANSWER: No, since a finance professional is not involved, there is no commission charged.
HOST: I know that your firm works in the capacity as financial planners with your clients preparing for retirement, and I assume that means you are not only looking at their investments but also 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’s 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,” people have some initial reactions regarding its purpose, usefulness and relevance. We’ve noticed that the common perceptions surrounding long-term care (LTC) aren’t always true.
Some of the most frequent myths we hear about LTC:
- Medicare/Medicaid will pay for my long-term care. We hear this one a lot … although it is not accurate. Medicare helps to pay for your recovery in a skilled nursing care facility after a three-day hospital stay. Medicare 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 that, you’re on your own for 100% of the costs incurred from staying in a skilled nursing facility and Medicare will stop paying. (11/2018)
- If you’re banking on Medicaid, 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: 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: That is another myth, at least with today’s policies that long-term care insurance policies only cover nursing home stays. It is possible that your parents may have an old “nursing home policy” that does only cover this, so check their policy to get the details.
LTC insurance policies of TODAY generally cover home health care, hospice care, respite care and Alzheimer’s care facilities, among others. A LTC policy allows you to seek the type of care you’ll need without cracking your nest egg—whether that be in a nursing facility or remaining in your own home.
Other misconceptions:
- I 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 has 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’s an expense that can rapidly deplete your savings if you need prolonged care and don’t have coverage.
- I’m 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 skyrocket, or worse, becoming unable to get coverage. 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 early- to mid-50s. 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: What about the idea of self-funding our own long-term care costs?
KLAAS FINANCIAL: This is a great question. Let’s begin with what might those costs even look like:
*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.
Alternatively, they could purchase one of the increasingly popular hybrid life/long-term care products.
If you’re among the people who are still on the fence about what to do, the best way to make smart decisions is to go into the process armed with the facts. How likely are you to need long-term care and for how long? What does long-term care cost, and what does it cost to insure against it? Speak to a specialist to find out what is right for you.
Money in Motion Listener Question Corner
HOST: Now a question in our Money in Motion Listener Question Corner, one of your listeners, Maureen wrote in:
I was married for 25 years and then divorced. While I was married I worked only about ten years, therefore my social security benefit is not very high, as my ex-husband was the primary breadwinner. Can I possibly take any of his benefit instead of my lower one?
#1 ADVISOR: Thanks Maureen for the question!
If you are divorced, but your marriage lasted 10 years or longer, you can receive benefits on your ex-spouse’s record (even if they have remarried) if:
You are unmarried;
You are age 62 or older;
Your ex-spouse is entitled to Social Security retirement or disability benefits; and
The benefit you are entitled to receive based on your own work is less than the benefit you would receive based on your ex-spouse’s work.
Your benefit as a divorced spouse is equal to one-half of your ex-spouse’s full retirement amount (or disability benefit) if you start receiving benefits at your full retirement age.
If you remarry, you generally cannot collect benefits on your former spouse’s record unless your later marriage ends (whether by death, divorce, or annulment).
The best resource is going to the Social Security website SSA.GOV. You should be able to set up an account online and then be able to see what your current benefit is looking like. If You can also set up an appointment with your local Social Security office. Their phone number is: 800-772-1213.
HOST: Now, we have a question from our Money in Motion Listener Question Corner, where one of your listeners, Maureen, wrote in: “I was married for 25 years and then divorced. While I was married I worked only about ten years, therefore my social security benefit is not very high, as my ex-husband was the primary breadwinner. Can I possibly take any of his benefit instead of my lower one?”
KLAAS FINANCIAL: Thanks Maureen for the question! If you are divorced, but your marriage lasted 10 years or longer, you can receive benefits on your ex-spouse’s record (even if they have remarried), if:
- You are unmarried;
- You are age 62 or older;
- Your ex-spouse is entitled to Social Security retirement or disability benefits; and
- The benefit you are entitled to receive based on your own work is less than the benefit you would receive based on your ex-spouse’s work.
Your benefit as a divorced spouse is equal to one-half of your ex-spouse’s full retirement amount (or disability benefit) if you start receiving benefits at your full retirement age.
If you remarry, you generally cannot collect benefits on your former spouse’s record unless your later marriage ends (whether by death, divorce, or annulment).
The best resource is going to the Social Security website at SSA.GOV. You should be able to set up an account online and then be able to see what your current benefit is looking like. If You can also set up an appointment with your local Social Security office. Their phone number is, 800-772-1213.
Catch C.J. Klaas and Maleeah Cuevas on Money in Motion every Thursday on Madison's 1310 WIBA from 8:05-8:35am.
