Retirement

It Isn't What You Expect

Two hints: it's not inflation, and it's not taxes. The biggest risk to your nest egg is a long-term care event.

With the average cost of long-term care in an assisted living facility at $3300 per month, a $100,000 nest egg could be wiped out in two-and-a-half years. A private room in a nursing home at an average daily rate of $222 will decimate that $100,000 balance in just 15 months. Still worse, the cost of long-term care has increased nearly 6% annually for the past five years.

Advances in medicine allow us to live longer, but have increased our need for care when we're old and worn out. And if acute diseases like heart failure don't do us in, the chronic ones like Alzheimer's and cancer eventually do. In the process, they'll extend the number of months -- maybe years -- that we'll likely need long-term care.

The four options we have when facing a long-term care event include spending down our assets, relying on family, going on Medicaid (not to be confused with Medicare), and buying long-term care insurance. Long-term care insurance policyholders typically cite "not wanting to be a burden on family" as the main reason for purchase.

The Odds Speak for Themselves

Consumers hate paying for something on which they may never see a return, but consider the following.

  • Odds of your home burning to the ground -- 1 in 16,000
  • Probability of totaling out your car -- 1 in 100
  • Odds of meeting a $2,500 medical insurance deductible annually -- 1 in 25
  • Probability of needing long-term care -- 1 in 2 for a woman; 1 in 3 for a man

We wouldn't go a day without owning home, auto, or health insurance. But statistically speaking, the probabilities of these events occurring pales in comparison to that of needing long-term care.

Want even more reason to ponder long-term care insurance for yourself or a loved one? Consider this: Over half of U.S. states have "filial support" laws that could prod you into forking over cash for your parents' unpaid long-term care debts.

Long-term Care Insurance 101

Health insurance and Medicare help pay for immediate medical expenses, whereas long-term care insurance helps people cope with the cost of chronic illnesses.

Long-term care insurance typically covers out-of-pocket expenses that come with home care, assisted living facilities, and nursing homes. The policies pay for help with everything from the basics, like dressing and bathing, to skilled care.

A long-term care insurance policy creates a pool of money for your future use. How big the pool is depends on the size of the policy; the larger the pool, the bigger the premiums. How fast the pool is drained depends on what type of long-term care is required and how often it's needed.

Long-term care insurance can be purchased either as an individual policy or part of a group plan. Many employers offer group long-term care insurance. Benefits of group plans include inexpensive premiums and no need for medical underwriting.

If you're considering purchasing coverage as an individual, be aware that the underwriting process is getting more conservative, and rejection levels are higher than they were just five years ago. Medical records are reviewed in the underwriting process, and a phone screen including a memory recall test is typically involved. When considering an individual policy, keep in mind that the premiums steadily increase after age 60.

What to Look for When Evaluating Insurers

Long-term care insurance leaves a sour taste in people's mouths because of the exit of several insurance companies from the industry and recent premium increases that have affected some policyholders. But now that insurers have factored in the impact of low interest rates on their ability to generate income to pay claims, the majority of rate increases should be over.

Look for insurers with tenure in the business, exhaustive actuarial data, solid financials, and significant business in your state.

Lastly, keep in mind that long-term care insurance is not a one-size-fits-all solution. There exist cases where it makes a lot of sense and others where it just doesn't. So do yourself and your loved ones a favor and evaluate this for your own situation.


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Joe

I think your assessment on the penalty clause is incorrect. First, the $2,000 is not tax deductible even though the Supreme Court said that the Act was a tax in order to approve it. Since the penalty is not deductible, a business that pays a corporate or personal income tax of 35% tax would pay $120. State income tax for some states more or less plus $700 for federal taxes, thus the penalty for full time workers would be $2,820 not $2,000. Then there is the full time equivalent treatment which requires employers to add up all the part time employee work hours in a week, multiple by 4 (weeks) and then divide by 120. For example, a franchisee has 30 employees per restaurant and 20 restaurants and ( home office and supervisory staff that gets exempted under the exemption rule), if ten workers at each restaurant are full time the employer will pay $28,200 minimum plus the 20 part time workers hours worked for a week would be 500 hours times 4 weeks equals 2,000 hours divided by 120 equals 16.67 full time equivalents , the rule is you add 10 full time plus 16.67 rounded to 17 means the employer would pay 27 times $2,820 which is $76,140 per restaurant just to get only the ten full time employees would actually be covered by insurance at a cost of $7,614. then times 20 restaurants equals $ 1,522,800 in fines and additional taxes to only cover 200 employees. If that same employer elects to pay the ten full time employees insurance costs, right now depending on deductibles that cost could be less than $6,000 per full time employee (10) and it is tax deductible which lowers the cost per employee. Some employers will reduce their full time staff and hire more part time employees where additional savings might be available. No one will really know the true costs of providing insurance until the Federal government dictates the minimum allowable coverage. So even the above numbers are suspect .

November 04 2012 at 11:16 AM Report abuse rate up rate down Reply
mbr33

We need to address end-of-life issues that are, for whatever reason, still off the table. When I get to the point that I don't know who I am, don't know who my loved ones are, or can't get out of bed or do anything that makes like worth living, I don't want to be around anymore. We, as a society, need to give people the option of making this statement in legally-binding way. The fact that the bulk of our heath care expenses occur long after our lives have effectively ended is just a shame. Same can be said for the fact that we can't have an intelligent conversation about the issue. The name-calling and demonizing has got to stop.

August 23 2012 at 9:11 PM Report abuse rate up rate down Reply
gene7254

Our Government caused all our problems by not planning ahead. ALL BUSINESS' MAKE FUTURE PLANS SO THEY CAN CONTINUE THEIR OPERATIONS. Our goverment took advantage of us by not planning ahead. All our problems could by solved by reducing the Money we spend on many other countries. This is our money. Let us spend it on American Citzens not on foreign countries that wish us harm. Problem Solved.

August 23 2012 at 4:26 PM Report abuse +2 rate up rate down Reply
CXXX

Long-term care insurance is a very complex financial product that requires consumer education prior to purchasing. It should not be a purchase that is rushed or pressured. I found http://ltcfacts.org/ to be a good educational website that answered my questions. The LTCi dictionary was especially helpful.

August 23 2012 at 3:26 PM Report abuse rate up rate down Reply
crimeslawyer

The biggest risk is the loss of freedon and enslavement as a result of the liberals and their philosophy of let the government do it all.

August 23 2012 at 3:08 PM Report abuse +1 rate up rate down Reply
Sunny

our biggest risk is actually seeing obamacare implements fully....

August 23 2012 at 2:41 AM Report abuse +1 rate up rate down Reply
jeff

The biggest risk to your Golden years lies in Washington..............................IDIOTS.........

August 23 2012 at 12:28 AM Report abuse +4 rate up rate down Reply
NannerFL

Both my husband and I have father's in LTC. One earlier stage and one very advanced stage dementia. My father is a widower who has a fairly decient savings....NOT a 1%per but enough to buy a nice car...if he could still drive... (and a small condo to sell....maybe worth about 100K) We found him a non profit nice place with a teeny kitchen and seperate bedroom. 2 squares a day, activities etc. With his SS and pension it costs him aprox $400 a month over what he brings in to live there. That is not counting his meds and any medical bills over and above his medical insurance.. He does have to pay for his own phone also. I manage his finances and from what I can figure out he should be ok for quite awhile yet. He hates that his money is not going to his kids but that's the way things go. His mother, my grandmother, lived to be 103 so yeah....he could be wiped out at some point.

My FIL (the advanced case) is married. Wife in good health and only in her later 60's.. All she is allowed to keep for sure is her home and about 20% of their assets! Because he is an advanced case and has no pension their assets are being eaten up very quickly. He doesn't know who anyone is and can't even walk anymore BUT he is in good physical health so could live quite awhile yet. THIS is the type of situation that needs LTC insurance.

When I was talking to an attorney about some of my father's finances I asked him about LTC ins. He said everyone in their office has it.

Not something I've checked into yet but considering it. Especially since we are "older" parents of a 10 yr old.

I guess it depends on your situation. If you are single, have a few bucks saved and find the right place then LTC might not be what you need.....just know when your "few bucks saved" runs out you end up in a county or state run place. Some of these are very nice....many....not so much.

If you are married it might be something to consider. Especially if you have a family history of something. Be it dementia or some other medical condition.

BTW my 103 yr old grandmother? She had only a small amount of SS coming in and a very modest home. She didn't go into LTC until she was almost 100. She was wiped out and in a county home (luckily a nice one) the last year of her life.

August 22 2012 at 10:39 PM Report abuse +1 rate up rate down Reply
abcadams1

The average life expectancy in America in 1930 was 59 years old. People worked until they were dead. That is why long-term retirement care and social security, which took place about 70 years ago, are fairly new to this country.

August 22 2012 at 7:53 PM Report abuse rate up rate down Reply
papadon.don

Jeeeze... more crap for us old geezers to worry about...how did our parents and grandparents and G-grandparents make it without LTC??? I know lots of people at my age... aint NONE hadda rely on LTC. Somethings in retirement are simply NOT financially feasible: one is buying that 60-ft yacht in the Caribbean... another is advance purchase of burial plots with all the trimmings... another is busting your budget to pay some insurance outfit for LTC. For crap sake, just let me croak MY way. Medicare provides no-cost Hospice care for us, so why the big push for LTC insurance??

August 22 2012 at 7:34 PM Report abuse rate up rate down Reply
1 reply to papadon.don's comment
Sunny

we need to honor our elderly...as Japan does...they do not put their elderly in homes..no matter what...they kknow they took care of them when they were growing up and they return that favor forever..

August 23 2012 at 2:43 AM Report abuse rate up rate down Reply