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I read this article by Morningstar’s Christine Benz:
https://www.morningstar.com/retirement/youre-worried-about-long-term-care-expenses-lets-do-something-about-it
The article made me think that I don’t believe this topic that has been thoroughly vetted by HD participants. If you don’t have a long term care (LTC) policy how are you attacking the problem?
I must admit we have no specific plan to cover LTC expenses. I decided long ago that LTC premiums were not a good value. With the large increases in premiums over the years I think that was the right decision for us. I have heard of hybrid LTC/life insurance policies. Do any HD participants have such a policy? If so what are the particulars, and why did you choose such a policy?
Our potential sources of funds for paying for LTC are:
1) If we both wait until 70 to claim Social Security our combined income from SS is projected to be around 84K annually
2) Our portfolio is in excess of 1 million
3) Our house is paid off and the equity is slightly greater 500K
Both my parents and my twin brother required LTC for 1-3 years due to dementia. My parents did have a LTC policy that paid for at least a portion of their assisted living facility and their nursing home costs, my brother’s care was paid by Medicaid.
I’m normally an obsessive financial planner (we have not broached the subject in our occasional use of our fee only CFP) but I’m hoping that neither of us require LTC. The odds however are 50/50 one of us will, especially since we are in good health, affluent, and as I have written before the odds are my wife will live to 100+.
I’m hoping that if we do require LTC our assets will be sufficient without being financially ruined.
As it has been said though hoping is not a plan.
“Save all that you can.”
Really? I never thought of that before.
Clearly, identifying the best opportunity for funding retiree medical and Long Term Care (LTC) hasn’t been a top priority for most Americans.
Ms. Benz notes that just 7 million people are covered by long-term-care-insurance while there are 75+ million Americans age 60+.
In fact, most employers have consistently denied their workers access to the best option for funding long term care (LTC) and retiree medical coverage over the past 21+ years! And, the minority of employers who have offered the best solution as a choice have failed to properly price and present the best solution. As a result, where workers have a choice, they tend to avoid the option that would best help them prepare for LTC and retiree medical expenses.
The best solution for funding LTC and retiree medical for workers retiring in the 2nd half of the 21st Century? Make available and leverage all tax preferred savings options … then … save all you can! See: https://www.soa.org/globalassets/assets/library/newsletters/retirement-section-news/2020/august/rsn-2020-08-towarnicky.pdf
Ms. Benz’ suggests a fourth bucket of savings – stating: “… I like the idea of creating a dedicated long-term-care bucket that is separate from the spendable portfolio. … The “where” of your long-term-care bucket is the easiest question. I tend to favor a traditional tax-deferred account … A traditional IRA also makes sense from a tax perspective. …”
I agree with a separate bucket, but only if it is a Health Savings Account (HSA) – the retirement preparation opportunity that offers America’s most lucrative tax preference.
Ms. Benz fails to identify the HSA. Everyone who posted here prior to me also failed to identify the HSA.
A few workers have figured it out. The 2024 mid-year Devenir survey reports that there were 38 million HSA accounts with $138 Billion in assets. Devenir estimates continued growth to 43+ million accounts with $175 billion in assets by 2027. I would like to think the majority of those accounts and assets are set asides for post-retirement medical and LTC expenses and insurance – but, probably not.
Why HSA is best!
Did you know that LTC insurance premiums (IRC §7702B) and LTC out-of-pocket expenses are generally eligible for tax-preferred reimbursement using pre-tax HSA contributions and earnings thereon? How about Medicare Part B, Part D and IRMAA premiums? Yup, those as well.
So, why not ask your employer to offer worker-pay-all, tax-qualified LTC insurance as a benefit plan subject to ERISA – to be funded with tax free HSA assets?
Or, based on a recent IRS private letter ruling, your employer might let you control the allocation of company contributions among the cost of active medical coverage, the 401k and LTC insurance. Or, if the employer wants to control the allocation, why not set up the company contribution to the HSA as a match – a la the 401k plan?
Did you know that workers who are lucky enough to avoid all medical and long term care expenses in retirement can use HSA assets as penalty-tax-free, post-age 65 retirement income (or as a legacy benefit) … and that most HSA contributions qualify for a tax preference superior to those for 401k contributions because employer and employee contributions to Health Savings Accounts via a cafeteria plan, avoid FITW, SITW, FICA and FICA-Med?
And, did you know that employer-sponsored, fully insured, retiree-pay-all Medicare Supplement or Medicare Advantage premiums are also eligible for tax-preferred reimbursement using HSA assets – unlike say your AARP Medicare Supplement. And, because they are fully-insured and retiree-pay-all, they generally do not affect the corporate balance sheet?
That is, what I would call “sleeves from the vest” – employers should offer such coverage as a means of helping workers target and prepare for retirement.
I always find it interesting that almost all plan sponsors still prefer to direct company financial support directed to the 401k – even though the 401k and HSA are better together. Keep in mind that the same dollar of expense is potentially 60% more efficient when contributed to a Health Savings Account versus the 401k account. See: https://401kspecialistmag.com/why-hsas-and-401ks-are-better-together-part-two/
Myself, I first elected to participate in a HSA in 2004. While I became ineligible to contribute to an HSA after 14 years, between my wife and I, we have accumulated almost $250,000 in HSA assets. My son got a much earlier start and, assuming his good health continues, I expect he will someday be a HSA millionaire!
Your assignment, should you choose to accept it, is to demand your employer adopt and foster use of HSA-capable coverage.
If you need assistance convincing your employer, feel free to use the articles I have written, or contact me at jacktowarnicky@gmail.com if you need more.
HSA’s are the second worst way to self-fund long-term care.
The worst way is a Roth IRA.
Scott – I would appreciate either an explanation or a reference for your comment. My understanding is that once a person is in long term care, then their medical expenses will exceed the standard deduction threshold, making use of a regular IRA to pay for LTC a better way to go. Do you have other reasons?
For decades I researched purchasing long-term care insurance, but either I was too young and didn’t make long-term care a priority or the premiums were too high or when I became serious about getting a policy, almost all of the insurance companies had left the industry either through divestiture or bankruptcy because they had miscalculated the cost of long-term care and found themselves in an unprofitable business.
One of the remaining long-term care insurance companies, Mutual of Omaha, sent me a mailer through my university affiliation. I scheduled a ZOOM call and talked with a knowledgeable and professional salesman who quantified the cost of long-term care for my wife and I. His pitch was solid: invest a few thousand dollars a year by paying premiums and when you reach certain ages when you typically need long-term care, you’ll have $750K available for you and your wife.
Mutual of Omaha is a quality company and their offer made sense.
We scheduled a second follow-up call. I thought about our conversation and focused on the $750K my wife and I seem to need for long-term care.
I had Mutual of Omaha’s estimated number of years before my wife or I needed long-term care, as well as the dollar amount needed for care.
Using my HP-12C calculator and the forward internal rate of return function, I calculated how much money I would need to invest today in a S&P 500 Index Fund (which historically has compounded by 9% per annum), so that by the age my wife and I probably need long-term care, we would have $750K available to us. The dollar amount needed today for long-term care tomorrow was calculated, approximately $250K.
I opened up a separate account with Fidelity solely for funding our long-term care to deter any temptation to use the money for another purpose. That money today is compounding. If Mutual of Omaha is correct and if the S&P 500 index continues its historical average rate of return, we should be fine. I know that life doesn’t happen as we plan, but I no longer worry about funding our long-term care.
During our second call, I explained my self-funding approach to the Mutual of Omaha representative, who graciously said that I had thought about this subject a great deal. We ended the conversation on a cordial note. The benefit of this self-funding approach is that if we don’t need the $750K for long-term care, our heirs will inherit the money.
Why not do both?
The $250K in the index fund will probably average 8%, right?
Reinvest 6% of that growth.
Use the other 2% to buy a great LTCi policy with your spouse.
This strategy protects you if one (or both) of you needs long-term care during the first half of retirement.
our LTC insurance is the VA they pay for home care and if it gets going to a LTC home the VA uses your SS so no additional outlay…….we are covered with no cost to us except my service time and exposure to AO which haunts me today
Our LTC “plan”. First, needing expensive care in the last few months and years on my life was a concern even when I was just starting my career and I always thought about, and worked toward, creating a financial “cushion” for it. In my 30s my mom had a major stroke after heart surgery causing paralysis and dementia requiring 11 years of skilled nursing care until her passing mostly financed by Medicaid. My dad ended up in a rehab facility next to her for over a year after getting double pneumonia trying to care for her at home before she went into the home. In our mid to late 50s, like a couple of other commenters here, my wife and I got Prudential LTC policies through our megacorp-that was 12 years ago. We currently have 5-600K of coverage albeit with a couple of premium increases. So LTCI is the first element of our plan. Working an extra year at mega corp prior to W2 retirement and then part time consulting for 6-7 years since adding to the cushion is part 2. A good chunk of this is in traditional retirement accounts. Part 3 is delaying SS and small pensions. Part 4-last year before rates were cut we both bought QLACs which kick in 77-83. Part 5-We are on the waiting list for 4 CCRCs in our area and essentially will trade our house for entrance. The LTCI policies are applicable to offset some extra costs of care if needed even though the CCRC will cover some of it. Part 6-I consider our financial advisor part of the plan as he has helped us plan for this and will be there when one of us passes and if and when we experience cognitive decline. I should also mention we are trying to invest in our health to increase our health span!
There are lots of great pieces of advice here, but I have two things for most people to think over that has not been mentioned.
Dig into your odds and map out a few potential scenarios and the likelihood they are to occur.
For singles:
Men are far less likely to need LTC because they tend to have a higher chance of death from heart disease and those deaths tend to be quick.
Unless it is a stroke. Do you have a family history of those?
How old were your grandparents (the ones that died of natural causes)?
Any parents/grandparents with dementia?
How is your personal health, especially in regards to things that would raise your risks of needing LTC (smoking, weight, how social are you, ethnicity, mental health, alcohol use in your past, hearing loss, pas concussion history).
Last, mortality table. And look for one that takes your age with below average/average/above average health status. Bonus if it looks at smoker vs. nonsmoker or any other info is baked in.
Couples:
Look at all of the above individually.
Also, look at JOINT mortality tables. Very often, when one spouse has LTC issues, the remaining spouse is able to help for a period of time and has a preference to watch over their loved one.
Is there an age gap? Generally, men die first and, generally, men marry younger women who are less likely to have mental cognition issues when their male spouse does (because they are younger).
For singles….play it what. What does it look like when if you slowly start losing abilities for daily living function? What’s the plan?
What about if it happens quickly (like if you had a stroke)?
Do you have kids you can rely on? Have you talked to them about the above scenarios and let them weigh in?
Do you have a DNR in some countries (as bleak as this is), “medical aid in dying” in certain instances is legal and I wouldn’t be shocked if that was a growing trend here in the US (it is currently legal in some capacity in 10 states).
Frou couples…
Everything above AND
Would your spouse prefer to take care of you or under what circumstances? Because men tend to die earlier and tend to marry somewhat younger, there is a higher chance the female spouse (in a strictly male/female) relationship would be able to take care to SOME capacity for some period. In same-sex relationships I would just look if there is age discrepancies and get both partners preferences for caring for the other in elder years, as well as the preferences of being cared for.
Also, couples should compare and evaluate each others risk factors for LTC. Do both spouses have high contributing risk factors or just one? Is one spouse much more likely to live into their late 80’s or 90s than the other?
I would bet, many couples would be best off getting LTC insurance for 1 spouse only (the one most likely to outlive the other).
I am NOT giving anyone advice on WHAT TO DO…..I am simply advising you to play out the different scenarios, where and how the funds flow and who has what responsibilities. And also, look at HOW LIKELY are those scenarios.
Also, realize there are more options than just pure LTC.
You could instead supplement (I didn’t say replace) LTC with an annuity with an inflation adjustment and have the annuity start very late in life (like 85). IF both spouses are still alive and one needs care, and the other is too old to help much, it could offset LTC or at least cover some in-home expenses and no red tape to manage.
IF you are lucky enough to have a child or children’s spouses capable of caring for someone in a SLOW progression of dementia or needing more care…you COULD gift them the max amount annually (18k in 2025) and ask them to set up a side brokerage account to take money from as long as they are caring for you. Start this early as Medicaid’s back period is 5 years. Or sign your home to them before you get too old and pay them rent. This helps both maintain assets that they could sell to fund your end-of-life LTC, but also makes shifting your assets much easier when you and your spouse are gone. Probate can be a real slow pain.
FOR ME PERSONALLY (and my wife)….we do NOT plan to carry LTC (but we are also only 41…so that may change). Our plan is to purchase a QLAC for here when we turn 70 that will start when SHE hits 80. And at age 70, we will sign the house over to the kids. We have talked about at age 75 we will start gifting each kid the max each year IF it would be their preference to look after us for a while. My wife and I did that with our father-in-law for a year, it wasn’t easy but it was super rewarding and gave us more time with him at the end of his life and caused much LESS worry for us and we knew how he was doing at all times for that year.
If they decide they do want us close, we may gift them extra money for their home or have a small or modular home built in their back yard (if that is THEIR preference ONLY).
The spirit of LTC is “I don’t want to be a big bother on my loved ones”.
With that….we should also make plans NOW on how to manage ourselves for as long as possible. This means looking at and adjusting health-related risks, looking at our homes and making sure we have plans to update them to address our future limitations, and LEARNING NEW TECHNOLOGY and staying semi-up to date. Future tech can enable many people to have abilities they didn’t have even 10 years ago. We can know have groceries and just about any product relieved to our homes, we can have wearing monitors to keep an eye on our heart or other conditions, we can have home cameras for loved ones to peek in on us without having to commute to us, we can stay in touch with loved ones far away and have those loved ones video chat without doctors to help us as a health advocate, phones in our pockets or smart watches allow us to call for help if we fall and cannot get up, we can buy self-rising beds and chairs. BUT ONLY IF we stay somewhat up to date on using smart phones, web cameras, computers, smart devices and eventually…AI.
Future tech will likely benefit seniors more than everyone else. Self-driving cars could allow us to stay social with the outside world longer or not miss doctor’s appointments, cameras placed in the home could detect if you fall and cannot get up and will call for help, telemedicine is gaining more popularity to be seen quicker without leaving your home or see a specialist who may not be in your town, AI can already record and transcribe doctors visits and one day soon, will be able to explain in laymans terms what all the doctor said means, AI will catch mistakes from hospital staff sooner and help advise more complex situations, ozempic and semaglutides could reduce diabetes and comorbidities from diabetes. New tools and options have been coming out at an ever-faster pace. We need to keep our mind OPEN and be willing to learn these new options so we can stay self-reliant much longer.
What is the probability of you needing care?
Have you ever been a caregiver?
I have, for a year. My father-in-law was battling cancer and moved in with my wife and I. It was a lot of work, but I wouldn’t change it for the world. My wife would have been a wreck not knowing how he was doing at all times, and it was a huge relief to know he was well cared for during that struggle. Of course, he had visiting nurses and hospice help for a couple of weeks at the very end.
It is hard and long work. It’s not for everyone, either. But it also shouldn’t be immediately ruled out.
Thanks for the detailed reply Will. Very interesting take on how current/future technologies maybe able to assist during aging.
Yes, it is a bold new world we have in front of us. It is not all roses for sure, but I really think the latest technology out now and coming down the pipeline will have the potential to help aging seniors the most.
I am not a huge fan of change, and I tend to see the downsides of new things first….so I constantly have to remind myself that many of these changes will benefit me greatly down the road, I just have to embrace it now and keep faith that things will work out for the better more often than not.
Wow. Great summary and reply.
Thank you Jeff!
There are three options; self-funding, insurance and Medicaid. We won’t qualify for Medicaid so that left the other two.
My spouse had been diagnosed with a chronic illness. We realized that she might not be eligible for insurance. We concluded we needed to save more and insurance, if available would be desireable and a backstop. We continued to save aggressively. I decided to go into a “phased” retirement and continue saving. When I took SS benefits I saved and invested a portion. However, I was able to reduce my work hours and enjoy a partial retirement.
I understand the optimum time to purchase insurance would be at the age of around age 60. Wait longer and the premiums may skyrocket. One issue with insurance is that the company may not be around when it was needed.
However, after treatment her illness receded. In 2008 she was declared to be in remission. She was 51 and I was 61. After discussion we took the opportunity to research and apply for LTC insurance. After completing the questionnaires, she was flagged for a medical interview. She passed that interview.
We did purchase the insurance. We’ve experienced 5% annual premium increases which were anticipated and are manageable.
As luck would have it, the market has been very good to us. It seems we over saved and we can self-fund if necessary.
Having the insurance has provided some piece of mind. Of course, we can use some of the excess savings for other things.
Norm
Keep in mind most LTC is provided in the home. Only about 2.3% of people over 65 live in a nursing home. About 25% of seniors will use nursing home care for some period of time.
About half of Americans aged 85 and older live with family, more than 40% live alone, and about 8% live in nursing homes.
An AI summary.
Yes, that would be a fourth option on our list of how to pay for LTC. G and I have both experienced family members at home for LTC, as well as professional facilities. We decided against using family for our care. In all honesty, we don’t want to burden them. I know the medical system may keep one alive well beyond the time I would want to be. The burden of this, both financial and psychological is something I want to spare others. BTW, there is a range of care for the very elderly and it was challenging to find facilities that the “patient” and family both agreed was very good. Frequent visits are important but that can wear on family members. Dementia can create a situation akin to Groundhog Day.
Great stats Mr. Quinn. Where did you find them?
I am of the mindset that LTC policies take up TOO much mind space for most of us, given our odds.
We should spend more time just coming up with management plans for the most likely scenarios and use that analysis to find our weak spots and how to THEN supplement them with LTC policies. That is just my personal opinion, though.
This site has some related but interesting stats (LTC here is an abbreviation for Long Term Care)
https://www.consumeraffairs.com/health/long-term-care-statistics.html
52% of people 65+ will need some LTC
25% of people 65+ will need LTC for less than 1 year
10% of people 65+ will need LTC for 1 to 2 years
11% of people 65+ will need LTC for 2 to 5 years
7% of people 65+ will need LTC for 5 or more years
It’s a compilation of different sources.
If I choose to not buy long-term care insurance, does that mean I’m less likely to need care? If I choose to buy long-term care insurance, does that mean I’m more likely to need care? I think some people think, “I’m not going to buy that insurance because I don’t ever want to need long-term care.”
That logic reminds me of those who have insufficient retirement savings and decide “I’m going to work forever”. We have known several in this situation. It is an ok thought, but one’s health may not support such an approach.
Years ago I read this article:
https://nymag.com/news/features/parent-health-care-2012-5/#
as well as this one:
https://www.washingtonpost.com/wp-dyn/content/article/2009/01/09/AR2009010902298_2.html?sid=ST2009010903215
and, lots of others since then.
I certainly would not judge the decisions on this topic by anyone else, but, around that time I decided, if I have anything to say or do about it when the time comes, that long term care, funded or not, was not for me.
Today, my parents are in their 90s, and, my family is living much of what was written in that first article from 2012 (in fact, many of the similarities are eerily striking). My parents have some LTCI and it helps a lot, but, in my opinion, the money part of this whole thing is really not the important part.
My best to all of you.
Thanks for the articles. From the first article:
“Make no mistake, the purpose of long-term-care insurance is to help finance some of the greatest misery and suffering human beings have yet devised.”
My twin brother died at 59 yo of both Alzheimer’s and Lewy Body Dementia (he donated his brain to Massachusetts General Memory Disorders Clinic). As I have written previously he declined over 3-5 years and for the the last year plus I’m pretty sure he didn’t know who we were, and definitely did not know he existed.
I have told my wife I never want to go into a wareh.. err nursing home and if I am placed there to stop any longevity medications.
Didn’t Vanguard release a study showing that something like 75% of people with LTC policies never submit a claim as they don’t trigger the clauses of the policy (meaning that they may need care but it isn’t long term enough).
I tried to find it on Vang.com but it seems they’ve removed it from the website. I think it was the wait period captures a lot of people.
Personally, I’m not concerned if I or my wife need care for a short period of time. I choose a high-deductible for most of my insurance coverages, including my long-term care insurance.
Because of your family history you would not be able to qualify for a long-term care insurance policy or even a hybrid. There’s a slim chance you could qualify for an annuity with a long-term care rider. But those policies are rarely a good value. You’ll need to self-insure. The best way to do that is to use a traditional IRA or 401(k) to pay for your care. If your wife is healthy, it may make sense for her to get a traditional LTCi policy or a Life/LTC hybrid. If she buys a hybrid, make sure it has a 7702(b) rider and make sure that the LTC benefits are three times greater than the death benefit.
Somewhere a long time ago, I read something that suggested that potential users of LTC might be divided into three groups based on their net worth:
1) The low net worth group. These folks have (pick a number) say less than $500k. When faced with $10-12k monthly bills for care, they will try to arrange their affairs so that they qualify for Medicaid. The current challenge to this approach is the possible reduction in federal support for state medicaid plans by the administration.
2) The high net worth group. Again, (pick a number) these people have net worth of $2M or more. They will write checks to cover the cost of LTC. As private pay customers they are highly desired by providers of LTC services.
3) Those between the high net worth and low net worth groups. When I read this half-forgotten article a long time ago, LTC policies were readily available, and reasonably priced. Of course, today this isn’t so true. So the advice of the past for the folks in the middle to purchase LTC policies and transfer some of this risk to insurance companies is more difficult to execute. This is the kind of topic for which an hourly fee-only financial planner might be consulted. Such a planner would be able to take data about your assets and expenses, and do some modeling for scenarios where you might need to pay for LTC.
I know nothing about any of the insurance options which have been discussed in some of the responses to this forum article. But, it is the kind of thing where a lot of caution is necessary. Anything you buy which provides benefits far into the future contains risk.
My wife and I both purchased LTCI in our early 30s back in 2000 with an initial $200 daily benefit, a compound benefit increase rider and a lifetime benefit option. We opted for a 90-day waiting period in an effort to keep premiums manageable. Our daily benefit has grown to 645.00 due to the compound interest rider. This is a very healthy daily benefit when compared to average LTC cost per day for facilities in our area (you can lookup average cost in your area using the Genworth cost of care survey).
Our purchase of coverage, admittedly at an uncommonly young age for LTCI, was tied to witnessing three of our four parents (and a handful of aunts and uncles) each requiring some form LTC as they aged. Both of her parents ended up requiring long term care in their late 50s / early 60s before they passed.
Initial premiums back in 2000 were pegged to our ages at the time of purchase (quite low compared to those purchasing coverage in their 50s or 60s). Despite significant rate increases every other year or so since, our current annual cost is still manageable with both of us still working and in our late 50s. Granted, after we retire things make look a bit different, as we just realized a 20% increase in our premiums for 2025.
Our LTCI insurer has offered some options to reduce premium cost by:
For now, we are going to hang on with our plans as-is (our LTCI cost combined is currently $5,400 per year). Based on premiums we’ve heard quoted by family and friends who bought LTCI coverage later in life, we almost feel lucky to pay the amount we do for our coverage. After we both retire, tweaks to our plan as outlined above may be back on the table for discussion. Given our family health history, there is significant peace of mind that comes with these premium payments.
My wife and I purchased Genworth LTC policies in 2011 for apx $5,400/year total when we were 65 and 66. After multiple premium increases, they now are apx $18,000 total with a recent letter saying they are requesting a 47% increase from the State Corporation Commission for next year. Have to admit that I was aware the premiums could increase, but didn’t count on an almost 400% increase in 15 years. Carefully looking at what to do but am definitely suffering from acute loss aversion.
Years ago we took out TIAA guaranteed annuities each now $550k-ish with the intent those would be our LTC coverage if needed.
Let’s assume you earn 4% per year on those two annuities. That’s about $44,000 per year in interest. If you allocated $5,000 per year (from the earnings) for a good LTCi policy, wouldn’t it make sense to protect the annuities?
There are reasons I would not now recommend the TIAA guaranteed annuity route, but we started those in the 80s, and both of us came from backgrounds with much family financial turbulence, so it made sense at the time. Now, with other saving and investment we could fully fund LTC coverage so we won’t take out policies, but I think your idea is a good one to hedge maybe half the cost per day of LTC.
I posted a Forum piece on Whole Life Insurance here. I explained how I used the cash value from that insurance to purchase a single premium LTC policy. While I hope I don’t need it, I expect to use the LTC policy, Social Security, and remaining investments to pay for care when that time comes – but I will be kicking and screaming the whole way. My wife does not have LTC. She’s five years younger than me and has genetics for a potential long life. She’s in pretty good shape, with a pension, Social Security, and investments. We both have kids from previous marriages, and have chosen to keep our finances separate. I’m not sure that will help or hurt once the first one of us needs that kind of care.
I did exactly this as well (my original insurance policy was with North Western Mutual (almost similar time frame as well). I terminated the life insurance policy, rolled some of the tax deferred money (via a 1035 exchange) into a single premium Hybrid LTCI policy. The remaining cash was rolled into an annuity (with Schwab S&P500 (70%) and Fidelity bond fund (30%)) again as a 1035.
I found this link to be very helpful in understanding LTC and how the needs are different for women compared to men. 70% of nursing home residents are women. So we need to plan accordingly.
https://www.aaltci.org/long-term-care-need/
…but most people who need long-term care receive their care at home (usually care that is provided by daughters/wives, etc..)
My wife and I bought LTC policies thru my old employer when we were around age 55. The policies offered were modestly priced as a group offering thru a top 3 financial institution, with no physical required. At the time i felt that we could likely self insure long term care, but was not certain. We purchased a “middle of the road” daily benefit, thinking this would help keep premiums down, while softening the blow to our portfolio should one or both of us need LTC.
Fast forward 11 years, the premiums have only increased when I’ve elected to accept the periodic inflation adjustment offered. I’m glad we have the policies, as I feel they give us possibly better quality of life in a managed care setting should we need it. Both my parents entered an assisted living facility in their mid 80s. My Mom was able to file a claim on her LTC policy which covered nearly all of the cost of the ALF which ran nearly $10,000/month. The claim ended up paying for nearly 3 years, and bought her top level medical care when she needed it most.
My wife and I do not have long term care policies but we have factored into our planning the potential costs of LTC. Between the two of us, only one of our four parents required LTC; my dad needed this level of support for about 8 months at the end of his life. We are both retired, in our 70s, are relatively healthy, and have retirement and brokerage accounts in excess of 1 million. We also waited until 70 to claim SS. We have no debts and own our condo. Years ago a financial advisor – who also sold us expensive whole life policies (since cashed in) – encouraged us to buy LTC insurance. I suspected he stood to gain hefty commissions. We politely declined. I think the question of whether or not to buy LTC policies depends upon personal circumstances – health, family health history, financial situation, and others.
I bought a group LTC policy when employed by a Citibank subsidiary in 2005. I maintained it when I left them in 2006 and have held onto it since. It is a John Hancock policy and it is benefits and feature rich.
In 20 years the premiums have only risen from $126 a month to $146 a month, (2 increases in 20 years) although I pay them annually.
My life doesn’t have LTCi, as she couldn’t quality for underwriting. I looked at the One American Life/LTC Hybrid and would have gladly bought it, but she didn’t pass underwriting on it either.
Should she require LTC in the future, it will have to be paid for out of two sources…our annuities that pay us $36,550 annually, and our portfolio. If either of us needs LTC and meets the standard qualifications, the annual income increase by 50%…to $54,825…for up to 5 years….and then reverts to $36,550 for both of our lifetimes.
While that additional $18,275 would only cover a month or two of care, any amount is better than no amount.
The balance of her care would have to come from our investment portfolio.
David at age 55 I researched the hybrid policies. I never liked the idea of stand-alone LTC policies. The leading hybrid LTC company is OneAmerica. I attended their seminars and researched their financials and history. I even got licensed to sell them. I paid $78000 for a joint policy for myself and my girlfriend. That purchased a second-to-die death benefit of $208000 but it also purchased $100000 per year per person if either of us needed LTC. If I also paid $2500/year additionally the benefits would never run out. Hopefully I never need it but even in a few years $100000/year should help defray the costs. I convinced only a few to buy these policies and have subsequently let my license lapse. I do find it funny that Christine Benz says she is “hyper-focused” on LTC but never looks at the solution of hybrid LTC policies. The annual premiums are fixed. I believe that in our 80’s(?) the expense of LTC is the greatest financial worry.
I researched this as well 3-4 years ago and I 100% agree with James, the “traditional” (or standalone) policies are a total waste of money. You’re much better off with a hybrid (in addition to One America, Lincoln and Global Atlantic were offering hybrid policies). The catch is, with a hybrid you will need a “single premium” (read – a sizable money) upfront.
Why are “traditional” policies a total waste of money?
My view of course but here goes
If you have a reasonably large tax deferred IRA I would use that to cover the costs and then have the expense deducted as a medical payments on your itemized deductions. My plan
Exactly! That’s the smartest way to self-insure (self-fund).
The megacorp I worked for offered group policies back when I was in my 40s. I decided that paying premiums for forty or fifty years was a bad idea. As I’ve written here before, I have moved to a Continuing Care Retirement Community with on-site Assisted Living and Skilled Nursing – although sometimes additional care may be necessary. The CCRC has a benevolent fund for residents who run out of money “through no fault of their own”. It has been in operation for over 30 years and no one has had to leave for lack of funds.
I am not overly enthusiastic about winding up in Skilled Nursing, and for certain diagnoses I will look into a one way trip to Dignitas in Switzerland.
Kathy I agree. LTC insurance isn’t an option for us, and even if it were, life in a skilled nursing facility isn’t palatable. If Dignitas isn’t an option, you may find me in the garage with sleeping pills, a bottle of Captain Morgan’s, and a rope.
I used to think that using the car exhaust was an option, but now I drive a hybrid and the engine doesn’t run when it’s stopped. The DIY scenarios also have the problem that it’s unfair to whoever discovers the body. I really do not understand the angst over Right to Die laws. I am participating in a series of seminars on “The Art of Dying Well” and someone expressed concern about my DNR….
If you don’t want to have to travel internationally, may I suggest Oregon or Vermont? Both allow non residents to partake of the services I believe you are indirectly referring to.
Unfortunately, the US Right to Die laws, where they exist, are of use to only a small number of people. You need doctors to certify that you are within six months of death, and to be able to administer the dose yourself. Patients with dementia, Parkinson’s, ALS, etc, can’t use them. Besides, I wouldn’t mind a final visit to the Alps – assuming I can still afford the trip. It might mean an earlier death, but I am interested in quality of life, not quantity.
I believe a diagnosis of ALS is enough to qualify for assistance under Oregon and California law.
Thirteen years ago, Prudential offered group LTC policies through my employer. The group policy cost was lower than individual policies I had found. Both were pretty low because I had not yet turned 50. My wife and I each decided to get one. I don’t recall finding any hybrid policies of the sort we see today. Prudential eventually stopped selling LTC policies, but they stand behind the ones they already sold.
There has been a steady drip of premium increases, though they do give an option of freezing the premium and taking lower benefits. In the middle of last year, the monthly cost of both policies went up from $220 to $264/month, a big jump. I think the lifetime benefit is $300k per policy but I need to check it.
Depending on how the next 10 years treat our retirement investments, we may choose to cancel the policies to self-fund future LTC costs, or to freeze the premium amount and accept lower benefits.
My age 83 mother had an LTC policy and unfortunately cancelled it. Between the value of her house, plus some other assets, she can afford to cover the costs of most care scenarios.
If there is some history of dementia in your family, you might explore using 23 and Me to learn your APOE genetic status. Depending which variant of that gene you have, you may be more or less likely to get late onset Alzheimer’s. APOE2 is somewhat protective; APOE4 raises your odds of developing Alz a little (~+20%) if you have one copy, and a lot (+~100%) if you have two.
I bought a Prudential group policy too, in my late forties eighteen years ago. The annual premiums have increased over time and now give me pause — last year’s was nearly $3000 — but in context they seem very fair. So far I have paid $28,446 for $849,000 in lifetime coverage. For many years, I could deduct the premiums on my state income taxes (sadly, no more). LTC premiums are deductible on federal income taxes, as once was useful to me when my medical expenses exceeded the IRS threshold.
That’s a higher lifetime benefit than the policies we have. Our premiums are lower than yours but not enough to justify the difference in benefits. Now I need to think about this more carefully.
Most Prudential policies have some kind of inflation protection. I suspect that you may have started with $300,000 of benefits but it has grown since then according to whichever inflation protection option you chose.
Yes, $340k now, still a lot lower than Jo’s original or current benefit.
Premiums can vary by state of residence. They also vary by age at the time the policy was purchased. The younger and healthier someone is when they apply, the lower their premium will be.
In my case, the initial coverage had a lifetime maximum benefit of $547,500. Until a few years ago, when the premiums were still relatively low, I opted for annual cost of living adjustments in coverage. The plan also has a 90 day waiting period. I am thankful for the coverage.
You are right—“hoping is not a plan.” We’re seen this up close with my mother-in-law, who passed last year and required LTC in her final year. We also recently had an awkward talk with my own mother, who said (a) she didn’t buy LTC insurance (b) she has about $300K to her name and (c) if she needs paid LTC and exhausts her own funds, she expects my siblings and me to kick in and help her partner cover it.
We had a crash course in finding and paying for care when my MIL’s Alzheimer’s was too much for her husband to manage at home. I would urge you and anyone else who’s in avoidance mode (or vague “hope it will all work out” mode) to consider the following steps:
Once you’re done that research, you’ll have a much more precise idea of what your options are and if your plan to self-fund is realistic—and if it’s not, to start thinking about alternatives.
Doesn’t your family history indicate a high risk for needing LTC?
Connie and I both have LTC insurance with a benefit equal to about 50% of the typical current LTC costs for five years inpatient.
We would use SS benefits (started at age 67) a portion of pension income and dividends and interest for the balance.
At our ages – 81 and 85 – the duration of any possible LTC is decreasing.
I guess that can be looked at as good or not so good.
I was adopted when I was 3 months old and have no family history. This is a risk I cannot define other than to be “average” for the population.
I do not have an LTC policy as the premiums are incredibly high. Also, the marketplace is strained. Companies do not want to be in this market.
R Quinn:
Excellent point.
If you and your bride are 81 and 85, and nether has any cognitive impairment, you have beaten the odds!
Statistically speaking, it is anticipated that by the time a couple reaches age 80, one of them will have a form of cognitive impairment.
I feel like you do though…the older I get and the longer I have no impairment, the better off I am and the lesser the chance I will need LTC
Can you cite a source for that statistic? I’d love to read more about it.