Using LTCI to Protect Your Assets

Having enough money to pay for the retirement you want is usually listed as one of the top concerns for those planning an early retirement. People are living longer than ever before and health care costs continue to climb. A 2014 study by Fidelity Investments estimated a “65-year-old couple retiring this year will need an average of $220,000 to cover medical expenses throughout retirement.” If that number isn’t sobering enough, their estimate does not include other expenses such as dental services and long term care.

The cost for long term care varies based upon where you live. Our research shows the most expensive state is Alaska at $56,210 per year for home health care and a staggering $255,865 per year for a skilled nursing facility. The least expensive state for care is Louisiana at $34,310 for home health care and $58,400 for a skilled nursing facility. The cost for this long term care has increased by an average of 3% per year; that means the costs double every 24 years.

Many of us believe that long term care is just for those with a stroke or dementia, however, according to the Department of Human Services, 70% of Americans will need long term care in their lifetime. Many people do not think about what will happen if they need care and there aren’t the financial resources to pay for it. Or if there are financial resources, but the cost of care for one spouse depletes the retirement savings for the surviving spouse, leaving them with little or nothing.

So what are your options?

For this example, let’s look at a couple, both age 55, who have the money to spend $200 per month in long term care planning. Let’s assume that they will need care at age 80. The current national average cost of home care is $3,600 per month, while a skilled nursing facility is $6,400 per month. Based on an average increase of 3% a year, by age 80, home health care will cost $7,600 per month and skilled nursing facility will be $13,400 per month.

Option 1: Invest the money.

If they invest $200 per month and achieve a 7% return for 25 years, they will have accumulated $162,423.53 by age 80. Based on the above cost of care guidelines, their fund will last 21 months for home care and 12 months in a facility.

Option 2: Purchase Long Term Care Insurance.

If they spend $200 per month on a long term care insurance policy, their total Long Term Care Benefit will grow to $458,537 by age 80. Their insurance pool of money will cover 60 months for home care and 34 months in a facility.

As you can see by the example, you will likely get more for your money by spending it on an insurance policy. But, you may be thinking Option 1 still sounds better, since, if you don’t ever need long term care, that money is available for your spouse or heirs. Few people know that the same thing can be achieved with insurance by adding a “Return of Premium” options to the policy. This is an example of why working with a specialist in long term care is so important.

The most important thing is having a plan for long term care. Insurance isn’t always the right solution, but a plan is. If you want to look at insurance, it is important to work with a specialist in long term care planning. There are many different policies, features and options that can be used to address your specific needs. Our LTC Consumer Specialists are some of the best specialists in the nation and are available for free to answer questions or provide quotes.