Published in the August 31 – September 13, 2016 issue of Morgan Hill Life

By Dan Newquist

Dan Newquist

Dan Newquist

Spiders, heights, and public speaking. Chances are, you have at least one of these fears.

Seeking a better understanding of how people are preparing for retirement, the nonprofit Transamerica Center for Retirement Studies asked more than 4,500 American workers in 2015 about their greatest retirement fears. Thirty-six percent said, “Declining health that requires long-term care,” second only to “outliving my savings and investments,” at 44 percent.

Will you need long-term care in your lifetime? The U.S. Department of Health and Human Services sites that 70 percent of people turning age 65 can expect to use some form of long-term care during their lives. LTC services may include nursing/recovery care, home health care, help with activities of daily living (bathing, eating, dressing, toileting, continence, and transferring), respite care, hospice care or adult day care.

Care may be given in a nursing home, recovery center, assisted living facility, hospice facility, day care facility or in your own home. LTC also may include care management services, which evaluate your needs and coordinate and monitor your LTC services.

Who pays for LTC? Generally, costs for this type of care are paid out-of-pocket by the individual needing the care. If you’ve ever needed LTC, you know it’s not inexpensive. For retirees on a fixed income, these costs can be devastating to their financial longevity. Since these types of services are not covered by traditional health insurance, Medicare, Medicare supplement insurance or hospital plans, family members often take on some or all of the financial burden themselves to ensure care for their loved ones.
The cost of LTC services vary by state, county, and even city to city.

According to Genworth Financial, as of 2016, current monthly costs in San Jose are averaging $5,434 for homemaker services, $5,720 for homemaker health aide, $1,950 for adult day health care, $4,500 for assisted living with a private room, $9,901 for nursing care home that’s semi-private, and $11,482 for nursing home care with a private room.

So what can you do and how can you plan to meet these expenses. If you have enough wealth to self-insure, that’s one consideration. Another option is LTC insurance, or Medicaid will provide some assistance to those who qualify.

LTC insurance is an important consideration and a conversation you should be having with your financial advisor. It is an emotional purchase. Whether you ultimately decide to purchase coverage or not, your advisor can guide you through a thoughtful and prudent discussion.

LTC insurance is not inexpensive. Annual premiums are much higher than life insurance. But if it makes sense for your situation, and you can afford it, just like earthquake insurance it can prove to be a worthwhile expense should you ever need it.

To illustrate this hypothetically: For a 60-year-old female who is a non-smoker and in good health, a LTC insurance policy providing maximum benefit coverage today of $150/day ($4,500/month) for the benefits she will receive if care is needed and includes an inflation protection rider, meaning the benefit coverage limits will increase each year by a specified percentage, could easily have an annual premium over $4,000.

Let’s now assume she pays the premiums for 20 years. By age 80 the total premiums paid would be $80,000. That’s a big number — but let’s now assume that at age 80 she needs the coverage.

The cost of assisted living (using 2016 San Jose average values) is $4,500/month or $54,000/year. Her break-even point would be about 18 months from when the LTC insurance benefits begin paying, and predictably much sooner, according to Genworth. One year in an assisted living facility in San Jose is projected to cost more than $110,000 two decades from now.

The cost and whether you should buy LTC insurance depends on your age, health, pre-existing conditions and diagnosis, overall retirement goals, income, and assets. Policies can be tailored for you by adjusting the benefit coverage — such as, changing the benefit period, the elimination period, or the daily benefit and other coverage and policy features.

Keep in mind you should not buy a policy if you can’t afford the premium or aren’t sure you can pay the premium, including any increases, for the rest of your life. Everyone’s situation is different, so consult your financial advisor or insurance professional regarding your particular situation.

DAN NEWQUIST, CFP®, AIF® is a Principal Investment Advisor Representative with RNP Advisory Services, Inc., a registered investment advisor, in Morgan Hill. He can be reached at 408-779-0699 or [email protected]. Securities offered through Foothill Securities, Inc., member FINRA/SIPC, an unaffiliated company. CA Insurance License Oc77188.