A Tough Conversation

Sean HarrisIncome, Legacy, Retirement, Social Security

Let’s talk about what happens if you or your loved ones need long-term care. It’s a touchy topic because the results are not pretty if you failed to plan ahead. Nevertheless, it’s necessary to have the conversation sooner rather than later.

Let’s start by defining long-term care. To be clear, we’re not talking about your healthcare after you retire, folks. We’re talking about the care needed when one acquires a disability or serious illness usually in the final years of life. Long-term care is comprised of many services that are typically related to personal care – feeding, bathing, “bathroom duties”, and the like – when an individual can no longer take care of themselves or needs assistance with one or more of these activities. Long-term care can be provided in a number of different venues, an assisted living facility, a retirement community, a nursing home, in the patient’s own home or, for terminally ill patients, in a hospice. Having quality long-term care is a luxury and, for most, it’s cost-prohibitive. Depending on the type of care, it can easily run upwards of $9,000 a month with an average duration of two years. Just let that sink in for a minute; those costs can quickly deplete your retirement savings and, in many cases, wipe out entire inheritances.

In the best-case scenario, we would all live long, happy, healthy lives and pass quietly in our sleep at a ripe old age. But, that’s not a reality for most. According to the National Center on Caregiving, “[t]he lifetime probability of becoming disabled…or of being cognitively impaired is 68% for people age 65 and older”.

So, having to face that reality, what are the options for paying for long-term care? You can try to save a lot of money but for most of us, that’s easier said than done. You could rely on your children or other relatives to take care of you, but most people don’t want to put that level of financial and emotional burden on their own family.

Then there’s Medicaid – that’s an option isn’t it? Yes and no. There are two reasons not to use Medicaid. First, you only qualify for Medicaid if your income is a certain percentage of the Federal Poverty Level (FPL). Let’s skip the financial math on this one, for now. You also can’t have any significant assets, including a home. Many people think they can game the system by divesting their assets to family members before trying to qualify for Medicaid in order to preserve their wealth. But the government will review your financial history if you apply for Medicaid. If they find any dubious activity, you will be disqualified.

Probably the better reason not to rely on Medicaid is because the quality of care is typically very poor. It’s an unfortunate reality, but long-term care facilities can only allocate a certain number of hours to Medicaid patients because they have to reserve their resources for those that come with money. That means that Medicaid patients typically receive less attention and their needs often aren’t adequately met.

All of this sounds bleak, and it is, but there is one good alternative and that is to have a plan. We sometimes recommend an index universal life insurance policy (IUL) which, if set up properly, gives you a lot of flexibility should you need to pay for long-term care, and it doesn’t tie up your money for only one purpose. You’ll accumulate savings tax free and use it how you need it. You can draw on it if you need additional income during retirement or if you need to pay for long-term care. If you have enough retirement income and never require long-term care, you can leave it to pay out a death benefit. This takes a lot of uncertainty out of buying a traditional life insurance policy, for example. And it’s all tax free whether you use it for income, long-term care or the death benefit.

The conversation about long-term care may be ugly, but the outcome, if you make a plan for long-term care, doesn’t have to be. We always recommend planning for the unknowns, especially when it comes to your retirement. The IUL is just one way you can protect yourself and your retirement income. Get in touch with us if you would like to learn more!