LONG TERM CARE…DON’T DOUBT ME!
OCTOBER 2018
“Insurance is something you buy in case bad s__t happens.”
Chris Rock
Nobody wants to think about bad things happening to themselves or loved ones. However, we are naïve and irresponsible to pretend that they cannot. Having watched too many family members end up in elder care facilities and witnessing what that entails plus the costs involved; I am trying to do everything and anything I can to avoid it. I actually try to convince myself that if I work out really hard and I keep reading and utilizing my brain to the best of my ability that I will be ok down the road. Unfortunately, while exercising both the mind and body has shown to be effective in curbing various ailments associated with old-age, it is not a guarantee. I have lectured my listeners countless times to the point of being a nag, the importance of taking care of one’s self.
The Employee Benefit Research Institutereleased a report on health care expenses in retirement that has backed what we have been warning people about for some time. According to the report, a couple 65 years old with median prescription drug expenses would need $296,000 in savings to have a 50% chance of having enough on hand to cover their health care expenses in retirement. If they wanted 90% odds of covering those costs, they would need $400,000 in savings. Believe it or not this report does not go far enough, due to the fact that the study does not factor in long-term care expenses. We all say that it is not going to be me, but studies are showing that seven out of ten people will need some form of long-term care at some point in time after the age of 65.
We spend a great deal of time educating our listeners and clients on the various factors that continue to change the retirement landscape. We have noticed that one very important piece that many are failing to realize or just ignore are long-term health care expenses and the necessary steps individuals need to take to mitigate. The reality is that long-term care expenses will make retirement assets evaporate faster than just about anything.
Recent studies have shown that the national median cost per month in 2018 for an assisted living facility was $4,000 a month. The cost of nursing home care for a semi-private room was $7,441 and for a private room the median cost was $8,365.
Putting this into perspective…Taking inflation into account over the next five years it will cost over $485,000 for you or a family member to stay in a semi-private nursing home room for a 5-year period starting in 2019. For you and a spouse, the costs can be nearly $1,000,000 and can easily exceed $1,000,000 if you stay longer or need a higher level of care.
Some of the problems that investors have been encountering when looking into long-term care options are some of the same-old nonsense we have been dealing with for years when it comes to insurance products.
First, people are being sold an overpriced policy with multiple add-ons that may be necessary for some, but most certainly not for everyone. (Bad Financial Planning Idea #10,473 Hiring an insurance salesman that often resemble insurance guy Ned Ryerson from the film Groundhog Daywhose modus operandi is selling as much insurance as they possibly can, not putting your interests first as a fiduciary would.)
Instead…
(Remember Rule #17 of Markowski Investments Rules for Financial Independence. “You own the right amount of insurance, and not a bit more.”)
Second, there are way too many people that are under the belief that if they are not prepared, Medicaid will step in and pay for it. The reality is that Medicaid will only pay nursing home care for low-income individuals that have already spent most of their assets. Also, be aware that it some cases, the facilities that Medicaid will pay for have that certain Soviet Unionesque quality associated with them. The fact remains that many people who need long term care never qualify for Medicaid assistance.
(Bad Financial Planning idea #10,474 If you have saved up considerable retirement assets that you want to pass on to your family, let us assure you that “spending down”what you have worked hard for, in order to get poor, so you can then let the government decide how, when, and if you receive care in a facility named after Stalin is not very smart.)
Third, a popular misconception with many people who are unfamiliar with long term care insurance is the belief that they are sentencing themselves to a nursing home in their later years. The reality, is that is only one aspect of what long term care can provide to you. The ideal in many cases it can be the best means to avoid staying in a nursing home and instead receive care in one’s own home. We believe that people should start looking at long-term care insurance as a means of avoiding a nursing or assisted living facility if that happens to be a priority for you. Long term care policies provide for many types of home services and certain policies may pay out even to family members who provide caregiving services to the policy owner, provided that certain requirements are met. If you have long term care insurance and are comfortable with the idea of moving into either a nursing home or an assisted living facility then you can rest assured that you have the freedom to choose which facility and what level of care you are most comfortable with.
(Quick tip: Certain long-term care policies today can provide effectively 10X the amount of care that you pay in premium while at the same time returning all of your premium back to your family if you don’t end up needing any care.)
If you are a baby boomer, planning to retire soon, or if you are still working and have an aging parent you really need to ask yourself is there a plan in place to pay for this care? All too often overlooked is the burden placed on the younger generation when the parents don’t have sufficient resources to pay for expenses. This leads to middle aged children paying out thousands a month for care.
Whether you think it best to self insure, purchase traditional long-term care, or to purchase a combination life and long term care insurance policy it is wise to factor in the costs of long term care when preparing for your future. This is especially the case for those who have substantial assets built up. Proactively deciding on how you’re going to protect your assets along with your choices and freedom in retirement are part of a truly comprehensive and successful retirement plan.
Do yourself and family a favor, “Don’t procrastinate here!” There is nothing more that we dislike as another one of our countless “See I told you so moments.” This is when people do not heed our counsel and ultimately things end up badly and wind-up negatively impacting you and your family’s wealth.
Don’t be that guy.
