As you prepare to enjoy your future and time in retirement, it’s essential to consider the potential costs of long term care, and whether you need to consider long term care as a part of your financial plan.
Long term care becomes necessary when we can no longer perform activities of daily living by ourselves like bathing, getting dressed or eating. The care provided is not rehabilitative in nature therefore, health insurance or Medicare will not cover it. We can’t emphasize this point enough.
Without special insurance that covers long term care needs, long term care will be funded “out of pocket”. The question you should ask yourself is “Do I have enough assets to pay for long-term care, or is long term care insurance necessary?”
We believe there are three primary concepts to consider when weighing long term care insurance: the financial ability to pay for long term care, spousal impoverishment, and the impact long term care has on legacy goals. Consider this example:
- Bob is single and lives on pension income, Social Security and $800,000 of investments.
- He is not concerned if he leaves a legacy after his death.
- After a little research Bob estimates long term care can be as much as $108,000 per year.
- After a complete analysis which considers his annual spending and other retirement goals, he determines he can afford at least 3 years of long term care in the future.
- He decides to fund any possible long-term care expenses from his income and investments.
- He makes the decision to not purchase a long-term care policy.
Bob’s mindset changes if he’s married or has kids. At once, the long-term care decision becomes more complex. Now, asset depletion has an impact on more than just Bob, and he’d be concerned his wife will become impoverished, or that he’d be leaving his kids very little as a legacy.
As a husband and a parent, Bob may determine a long-term care policy would cover a significant portion of his long-term care, thus leaving assets to his wife to maintain her lifestyle and a possible legacy to their children.
Make sure you realize how long you’ll have to pay long term care premiums. Unless you reasonably expect to work until you pass away or become incapacitated, you’ll have to keep paying long term care insurance premiums throughout your retirement to keep the insurance in force.
In other words, you’ll need enough spare income in your retirement to pay the premiums, which would require a decent asset base, a reliable income stream, and perhaps a lower cost of living.
If you’re in your fifties or sixties, we suggest reviewing your financial plan. Make sure your goals will remain intact if there is a need to cover long term care expenses in the future.