By Teresa McUsic
Long-term care is probably going to be the biggest hit to your retirement, but few are willing to face those cost square on and plan for it.
“The majority of people that will need the care don’t have long-term care coverage for an extended period,” said Burk Rosenthal, a certified planner with Rosenthal Retirement Planning in Fort Worth. “But if they don’t have long-term care coverage and come to need it, it can be devastating to them financially.”
Rosenthal, who added long-term insurance planning in-house to his practice six months ago, said convincing his clients of the need is an uphill battle.
“Eight out of ten of my clients are thinking about it and will continue to think about it until they need it,” he said. “Then it’s too late.”
|Long-Term Care Costs in DFW for 2014
|Skilled nursing private room
|Skilled nursing semi-private room
|Assisted Living Facility
|Home Health Aide
|Adult Day Care Service
|Source: GenWorth Financial
About 70 percent of people over age 65 will require some type of long-term care services in their lifetime. Of those, more than 40 percent will need care in a skilled nursing home, according to OwnYourFutureTexas.org, the website of the Texas Long Term Care Partnership. The partnership was created in 2007 by the legislature to encourage Texans to buy long-term care policies by allowing them to protect some of their assets from going toward their long-term care needs.
A new national survey by MoneyRates.com found that most Americans badly underestimate the costs of skilled nursing care and are neglecting to save for it.
Forty percent of survey respondents have set aside nothing for elder care, according to the survey, and two-thirds have less than $75,000 set aside.
“This isn’t how anyone wants to spend their money,” said Steve Blankenship, a certified planner with Heritage Financial, which has offices in Southlake and Grapevine. “But there is no cheap way out of this. Whether you stay at home or move, if you need care it’s certainly going to cost.”
The first thing planners recommend is trying to gain long-term care insurance through your company before retirement, if it is offered.
“It’s usually more affordable, but you may lose it when you leave or go into retirement,” Blankenship said. “Some companies allow it, so find out first if yours does.”
If you are buying long-term care insurance on the private market, be sure to get at least three competitive quotes, Rosenthal recommends.
“There are still big players out there offering it—Hancock, GenWorth, TransAmerica,” he said. “And most private plans rarely see their premiums go up.”
There are a number of options in long-term care insurance that can have a big effect on monthly premiums, Rosenthal said.
“Long-term care insurance is like a pizza—you can get plain cheese or one with all the bells and whistles,” he said.
Whether you need the insurance depends on your assets, Rosenthal said. If you have more than $5 million in assets, you likely will be able to afford long-term care out of pocket. If you don’t have much in the way of assets you can spend them down then qualify for Medicaid. Under Medicaid financed long-term care, however, you will be more limited on which facilities will accept you, and you likely will be sharing a room.
People with assets in between those two groups should consider long-term care insurance, Rosenthal said, particularly because of the state long-term care partnership program that will protect those assets if you purchase the insurance.
Texas, along with most of the states in the country, began allowing long-term plans to include an “asset disregard benefit” after state legislation created the partnerships. Those who purchase a partnership plan will be eligible to protect assets equal to the insurance benefits received, so those assets will not be taken into account in qualifying for Medicaid, in the event that the insurance plan’s time limit is used up.
For example, if a consumer purchased a long-term care policy with $100,000 in benefits and has $100,000 in assets, after he uses up the benefits in the policy, which typically last three to five years, the state will not consider his $100,000 in assets when determining if he qualifies for Medicaid to pay for the rest of his long-term care needs
But the number of insurers in partnership with the state program has dropped from 13 in 2011 to just eight today. Still, many big-named companies, including Genworth, John Hancock and Mutual of Omaha continue to have policies that work with the state program.
Other companies working outside the partnership, like Pacific Life, are adding a long-term care rider to a life insurance policy, Rosenthal said. The Pacific Life policy requires a lump sum single premium of $100,000 that can be returned in full if you change your mind, he said.
Bottom line: awareness of the costs of long-term care is an important step in planning, the advisers said.
“You can’t ignore it,” Blankenship said. “Not knowing it is not going to make it go away.”
For a good calculator on the costs of long-term care over time, go to Genworth’s website, www.longtermcareinsurance.org.
Teresa McUsic’s column appears Saturdays in the Fort Worth Star-Telegram. She can be reached at TMcUsic@SavvyConsumer.net