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I watched a YouTube that said there are 3 ways to tackle the LTC problem.
1. Long term care insurance, (which is more costly as we aged),
2. Whole life w a LTC rider, (maybe much more costly comparing option 1), or
3. Self funding from investment.
Your thoughts. Thanks in advance.
The LTC deductions must also exceed the standard tax deduction make a difference on your taxes. To claim this medical expense deduction you must itemize on schedule A to utilize tax-deferred IRA or 401K dollars to pay for long term care (LTC) expenses on your taxes that exceeds 7.5% of your Adjusted Gross Income (AGI).
Roth Conversions I did to provide around one million dollars all in safe assets; CDS. Would have hated to see losses after paying the taxes
Ken,
Just be aware it is more advantageous to utilize traditional IRA dollars to pay for long term care because you can deduct the medical portion on your taxes that exceeds 7.5% of your income. Since you pay no income tax on Roth withdrawls you lose that benefit.
You guys are so far more advanced financially than I will ever be! BUT I have a plan and my girls know it. After helping both my parents through dementia I made a plan. I will acknowledge that my life is, and has been excellent so when I start down a slippery health slope I intend to be in Switzerland at Pegasos Swiss Association or Dignitas (hopefully with my daughters). It’s not a big financial burden to fund this “death with dignity” endeavor. Like funding a vacation.
That is part of my plan too, but as Dana points out, we may be unable to implement it. A massive stroke, for instance. As back up I have both a Do Not Resuscitate order and a MOST (Medical Order for Scope of Treatment, POST in some states), plus a friend with my Healthcare Power of Attorney who is very good at saying no. Even with a dementia diagnosis timing will be an issue.
Glenna, I understand the appeal, but I have to wonder…when do you know it’s time to cross the rubicon? I can think of many situations where you may incur massive healthcare costs without meeting the criteria to proceed with your suggestion.
I have filled out all the forms (POST, POLST, advanced directives and talked with my daughters. Hoping to minimize medical missteps. But In Switzerland anyone may choose death if they are mentally competent. Even without a medical condition. The hardest decision is being willing to say it’s time! Only time will tell if I can follow through if I get a dementia diagnosis. This book was excellent for outlining the process of making that decision. “In Love: A Memoir of Love and Loss”
That is amazing internal fortitude. I read an article by Jason Zweig in WSJ about Daniel Kahneman.
https://www.wsj.com/arts-culture/books/daniel-kahneman-assisted-suicide-9fb16124
…or the situation may be such that one can’t manage the travel.
Good point.
We didn’t want to leave it to self-funding and didn’t want to become a financial burden on our daughters, so we bought LTC policies quite some time ago through CalPERS. We later adjusted them to a 10-year benefit when our original lifetime benefit became prohibitively expensive. Hopefully that will be enough. My family tree in particular is not impressive as to longevity, but my mother turns 85 this year, so you never know.
The other “pegs” of our plan include locked in monthly income (pensions + SS) with survivor benefits (except for the second SS, of course) and the intent to get on a couple of CCRC benefits. If we move to a CCRC at some point, we’ll either sell our house or tap savings for the down payment, our monthly income will cover the monthly fees, and LTC will kick in if we need skilled nursing or memory care.
Ten years ago I bought a One-America Hybrid LTC policy which embodies the concept of “self-funding”. The policy is essentially a second-to-die life insurance policy. I put down a lump sum and pay an annual premium to ensure the benefits never expire. If not completely spent for LTC the remaining funds will be paid to survivors. The premiums are fixed. They are not inflation-adjusted. The benefits will be non-taxable. Having this policy on my balance sheet protects the rest of my investment portfolio. I wrote the policy myself and did for a handful of other friends. I am no longer working but the policy is in force and there have been no rate increases as the policy was not underpriced at the start.
We are a bit of 2 options- LTC insurance and self funding. I purchased LTC through a group plan with my employer when I was in my mid 50s (this seems to be a good age to purchase if one is inclined to). At the time we didn’t know if we could self fund, but thought purchasing a plan with a modest daily benefit was perhaps worthwhile while also keeping premiums somewhat modest. We are now approaching 70, and it appears we could probably easily self fund, but will retain the LTC policies, as they provide a nice financial backstop should one of us need LTC. Premiums have increased (non-inflation related) a few times, but not hugely so. I don’t know if this is a function of our state regulator holding down increases, but so far so good.
I will add that in spite of the negative press LTC insurance receives, it is a useful product. One of my parents had a policy in place for about 15 years before needing it in the last 3 years of life. Self funding the care could have been done, but if the care extended much beyond 5 years, or if memory care was needed, it may have stretched the assets for the surviving spouse who also may have needed the assets for their care. As it worked out 3 years of Assisted Living expenses were fully covered, which the spouse also received as they shared the ALF apartment with the spouse that had filed the claim. The claim paid out nearly $10,000 a month for care.
My late mother-in-law had a LTC policy that we did access during the last year of her life with advanced Alzheimer’s, first for in-home care and last for residential memory care. The LTC policy covered most of the memory care costs because the facility coded as skilled nursing. As it turned out, she only lived there three months before dying suddenly from cardiac arrest, but it could have been a lot longer, as she was only 84 and otherwise healthy. Her LTC costs could have decimated her husband’s safety net for his later years. He has a LTC policy that he got through his employer, but it may not be as robust as the one we got her through our employment with the state of California.
I didn’t realize (until this happened to my sister-in-law) that you can sometimes get LTC to pay for assisted living even after you have cancelled the policy!
This is how it happened – my SIL was a very, very healthy (never smoked, never drank, ideal weight, good amount of exercise) 69yo who had a hemorrhagic stroke while at home alone (never married). Was able to get to a phone and call 911 and then spent most of the next year moving from stroke ICU to normal ICU to hospital to assisted living while she worked hard to recover as much ability as possible.
Many years ago (maybe 15 or so), she had purchased a Genworth LTC policy, but after paying about $12,000 in premiums, decided it was costing too much and cancelled.
She called Genworth to see if she could get any reimbursement. Genworth investigated her claim and refused. She read the refusal, thought that they had misunderstood (because she now no longer needed assisted living – she had returned to her condo). She refiled the claim, and they paid her the $12,000 in premiums she had paid all those years ago.
A very pleasant and unexpected outcome – current LTC policies probably don’t have this provision.
Thoughtful conversation around options. I read posts often re: LTC options and Im surprised I dont see many talking about Continuing Care at Home programs. The basic model is an upfront fee with ongoing monthly fees. In exchange you get coverage for care coordination services, access to services and coverage for cost of those services (giving you built in asset protection) all while supporting you to age in place.
Not all states have programs but if you are in a state where a licensed program exists its worth looking into as a viable option. The website Home – My House. My Home. can help you determine if CCaH is an option in your area/state
This looked attractive and I looked into it a bit. The main disadvantage seems to be when the care needs become more demanding it can get very expensive.
Our plan is self funded. We are in our mid 60’s and have no children. With our portfolio, a pension, and no heirs we can self fund for at least 6-8 years. Hopdfully more. If funds get low our retirement home is worth over 1 mil. Was hoping to leave it to our nieces but that could be sold as a last resort.
Become an expat and go to another country with excellent LTC at much less cost than the USA.
I can see that could be a reasonable option for some because I see first hand how my sisters have 2 maids to take care of our 102 y.o. mom at her home 24/7 with what my late dad’s investment for the past 10 years or so. In her country, this is quite affordable, maybe not here in the States.
This also speaks volume about how my late dad had planned to care for our mom because there is no social security, no pension, nor any LTC planning in their country.
I used to sell LTC insurance to my corporate customers for use by their employees. The insurance company underpriced the product, lost millions of dollars, raised the premiums substantially and finally gave the insureds a choice of taking much lower benefits, paying triple the premiums or basically abandoning the policies. It was a train wreck, and I am embarrassed to have sold the product, even though at the time I thought I was helping people. Go with self-funding or a CCRC if you can afford it.
Thanks for your honest opinion about the product and your perspective.
I was thinking with the baby boomers there would be more claims than premiums received, & that is just not sustainable.
We also chose self-funding. We moved almost 4 years ago to a well-run 50 year old nonprofit CRC with a very large endowment. It was begun early on and designed to cover anyone who – through no fault of their own – might run out of money. I read the contract statements carefully before signing. I think of the entry fee we paid as a form of annuity. We’ll always have a roof over our heads and food to eat.
I assume all CCRCs require financial statements – at first to accept a candidate for the waitlist, and then updated before move-in. We love the place and feel fortunate to be here.
I used to wonder about this choice until my father’s LTC claim. I’ve been dealing with his since he went into assisted living in December. After a medical event and rehab his CCRC staff told him he needed to be in assisted living, and could not stay in independent. He probably needed it earlier. He is doing much better in assisted living, but the insurance company as yet hasn’t agreed he needs to be there. He’s paying for his higher level of care as well as still paying his insurance premiums…
With self funding, we will decide when we need the next level of care, not an insurance company.
I too went through a bit of this with a claim I filed for a parent. There seems to be some pain in the initial process of qualifying- usually getting agreement that a certain # of assistance with daily living needs have been met. You can usually file an appeal with the insurance company, and if you still feel the claimant should be getting paid, you can file a complaint with the state insurance board that oversees LTC providers. I did have to go thru an appeal process with my parent’s claim, which ended up working. Once the claim was approved, it was only subject to an annual review.
I have sufficient income in retirement to pay, so self-funding is a no-brainer for me.
LTC insurance purchased 30 years ago with a 5% inflation adjustment every year so right now would cover the priciest memory care; the policy runs 6 years that can be split anyway between my husband and me. I hope neither of us has to use it! Beyond that there are our pensions both with 100% continued payments to the surviving spouse and SS. There are also IRAs and Roths, but we hope they go to our kids.
As a side note, traditional IRA as a legacy plan for your kids may not be a good idea. They would be subject to 10 years rule w taxation and they most likely in the peak earning years.
That’s true — and the reason we’re doing large Roth conversions every year.
We bought LTC insurance when I was in my forties – 40 years ago. It will cover maybe half the costs of LTC, the rest will come from income streams like SS and interest and dividends, if necessary from accumulated cash.
Was the premium back then reasonable? Inflation-adjusted?
Way back, when I was in my 40s, the megacorp offered employees Option 1. I figured I would likely be paying premiums for over forty years for something I might never use, and passed. Since then companies have abandoned the business, and premiums for remaining policies have risen. I do not regret that decision.
Instead, I have implemented David’s suggestion. In my mid-70s I moved to a non-profit CCRC that promises to keep me if I run out of money. It has been in operation for over 30 years and has an extensive wait list. Of course, this plan might be derailed by some black swan event, but that is true of any plan.
So, help me understand, the CCRC setup will cover any LTC expenses or are those expenses would be coming out of your money you gave them?
I like the CCRC idea if I would pass before my dearest spouse but with the aging baby boomers it may be very hard to get into one in Alabama, or in the South.
First, part of the entry fee is considered pre-payment of medical expenses. In my case (Type B CCRC), the cost of Assisted Living and Skilled Nursing is below market rates because of this (but above Independent Living).
Second, a non-profit CCRC is required to spend at least 5% of revenue on charity care to maintain that status. Support for residents who run out of money counts towards the 5%. We also have a charitable foundation dedicated to the same thing.
Note the qualification at mine of “through no fault of their own”. I imagine that if you are found to be maintaining a stable of Ferraris or to have been gambling on prediction markets there might be an issue. I have seen more dubious qualifiers – read the agreement carefully.
I am in North Carolina. My CCRC’s wait list was over 1,200 households last I heard. You need to get on a list or lists well ahead of time – deposits are typically small and refundable.
Self funding seems right to me!
We are relying on our portfolio, but also are planning on joining a nonprofit CCRC with a guarantee they will not put us out on the street if our assets are emptied. Possibility of number two.
As to your side note on point two vs point one costs, with number two you have a guaranteed payout. With number one you may or may not get any financial benefit, and from what I have read the red tape is very burdensome compared to option number two. I would pick two as long as you can afford the premiums.
I am doing option 3. We have no debt, and our basic expenses covered w our SS benefits, we have set aside a brokerage account for this future needs that is about 7 figures because the markets are up so nicely.