It can be a difficult thing for people to think about the possibility of needing assisted living or long-term care, but the reality is many people will need it. Two big questions loom as people look into long-term care; “How do I plan for it?” and “Can I afford it?” Planning sooner only improves circumstances later if or when care is needed. If you are young, 20’s - 30’s, maybe you don’t need this specific area of planning yet, but your parents do, and that can be a difficult, and necessary conversation to have!

 

When it comes to planning a safe and secure retirement, long-term care (LTC) can be a confusing and often unaddressed challenge for many families. This may be, in part, due to human nature—we don’t like to think about unpleasant possibilities of needing help being fed, bathed or using the restroom. Some might think it won’t happen to them. Others can’t think that far down the road.

 

Some additional obstacles may include:

● Underestimating the cost of care

● Understanding what triggers the need for long-term care.

● Knowing the cost and not comprehending how to pay for care

● Mistakenly assuming Medicare and health insurance will cover LTC needs

● Traditional long-term care insurance has had a bad rap, due in part to large premium hikes policies and delivered inconsistent benefits

● Some find it difficult to pay a great deal of money for something they may never use

 

Handling these issues doesn’t have to be a daunting task. Discussing and planning can help alleviate the emotional, financial and physical stress related to LTC. According to a 2018 study by Genworth, of those who prepared, 66% wished they had taken steps to plan sooner. In those situations where LTC was needed, 84% of caregivers and 75% of recipients report they would have “done things differently.” Without a plan, you may have to make in-the-moment decisions to help a loved one. Knee-jerk reaction planning can end poorly. 

Take a look at three of the most common LTC options:

  

Medicare vs. Medicaid

Of the many strategies to assist with LTC, Medicare is not one. Most people believe Medicare will pay for LTC; it does not. Medicare will pay for short stays (totaling 100 days) in skilled nursing facilities that provide rehab or therapy services after an approved hospital stay.

However, Medicaid covers long-term care costs at home or in a nursing facility. Medicaid is the primary payer for long-term care services. The issue is that many people who need long-term care never qualify for Medicaid assistance. Individuals must have limited income and assets to qualify. If someone is above the limits, current assets must be “spent down” before utilizing Medicaid.

 

Medicaid eligibility includes a lookback period- a review of financial records going back five years, which will seek to uncover whether assets were given away to meet your state’s Medicaid asset limit. If an individual does qualify, there might be a period called “Medicaid pending” where benefits have been denied or the recipient is not approved. This can be quite stressful, especially if immediate care is needed because not all facilities will accept a person who is in pending status.

 

Self-funded long-term care

Perhaps an individual cannot qualify for traditional long-term care insurance (LTCI) due to existing health issues. In this situation, they will have to use savings or investments to pay for care out of pocket and should set money aside for five or more years of LTC. Planning early is the key to success. The best advice is to live under one’s means now and save more than normal for retirement.

 

The downside to this is not knowing how many years of care may be needed. Alzheimer’s has an average life expectancy after diagnosis of eight to ten years, according to the Alzheimer’s Research and Prevention Foundation. My mother, who was diagnosed with Alzheimer’s, used the benefits of her LTC policy for almost eight years.

 

Use pre-tax savings, like an IRA

Another strategy designates pre-tax savings (IRA) to purchase LTC protection. Retirement assets can be surprisingly substantial and a good source for LTC needs. There are things to consider with this plan. The SECURE Act of 2019 instituted an important change to lifetime “stretch” IRA options. Previously, non-spouse beneficiaries were allowed to stretch their required minimum distributions (RMDs) over their life expectancies, thereby extending tax implications. The SECURE Act now requires non-spouse beneficiaries to take all distributions within a 10-year period following the death of the retirement account owner. This compels the beneficiary to pay taxes sooner. A solution could be for the IRA owner to purchase an asset based LTC policy with IRA proceeds, which has LTC coverage with a death benefit. If long-term care is not needed, the death benefit may flow to the estate income tax free.

 

The importance of planning for long-term care cannot be overstated. It is a critical aspect of comprehensive health and financial planning. By proactively exploring your options and making informed decisions, you can safeguard your future well-being and maintain a sense of control over your quality of life as you age. Whether you are planning for yourself or assisting a loved one, the investment in long-term care planning is an investment in peace of mind and security for the years ahead.