Every retirement plan needs to account for long-term care risks. People are living longer than ever before, and modern medicine is only improving that, leaving gaps in what health insurance covers. Too often families and individuals fail to account for long-term care planning, causing them to experience extreme financial burdens later in life. This can leave the surviving spouses without savings, and/or the surviving family in debt. We may come into this world with nothing, but we must leave it a better place financially for the people that matter most to us. One of the ways to accomplish this is by planning correctly, and efficiently for the increasing costs of long-term care.
The First Step
The first step to planning for long-term care is understanding the risk itself, and how to mitigate it. This is best accomplished by working with both a financial advisor and estate attorney who can educate their clients on long-term care risk. Chronic health conditions are very common for people over 65 and are usually NOT covered by health insurance. Once an individual’s health condition is labeled chronic, that person becomes financially responsible to pay out of pocket for their care services. Oftentimes, if planning is not in place, these chronic conditions rapidly deplete retirement savings, forcing people into state-paid nursing homes. This can cause dignity to be lost at the most vulnerable time of one’s life. Another scenario for seniors without long-term care planning is they may need to rely on their children or family members for support. This can then wreak havoc on family dynamics and/or their family member’s finances.
The term “Sandwich Generation,” was coined for individuals who have their ailing parents and their children living under one roof. The financial and emotional burden that this causes can be devastating, but avoidable.
One of the most important parts about long term care planning is that it needs to start decades in advance before a chronic illness occurs. This makes it difficult for clients in their 50’s and 60’s to be motivated to start because it is hard to imagine such an event when you’re in your peak earning years and healthy.
However, this is the ideal time to begin discussions with a financial advisor and estate attorney. The planning strategy will be different from person to person depending on net worth, income, and current state of their financials. It’s important to note that simply buying long-term care insurance or only doing a Medicaid Trust is not always complete planning.
The best long-term care planning is dynamic and mitigates the risk from multiple angles based on the client’s situation. For example, in response to the high demand for long-term care planning, life insurance hybrid products have been created to either supplement or offer an alternative to traditional long-term care insurance. This allows people who already own life insurance, and/or are considering cashing out their policies, to keep them, and re-purpose them for a portion of their long-term care planning.
Secondly, these life insurance products that have long-term care or chronic illness riders, often develop cash values that help build tax-efficient retirement savings. If a person never becomes chronically ill with such a product, they still have access to all their money, avoiding the lost opportunity cost that can occur why buying traditional long-term care insurance. Additionally, if that family or individual incur substantial out of pocket costs on long-term care costs, the death benefit from the life insurance is paid to surviving spouse or family. This, in turn, replenishes some, or all the money spent on their care so that the surviving family or spouse is not insolvent.
When planning to mitigate long-term care risk it is important to work with both an estate attorney and financial advisor to have the most well-rounded plan. It is ideal if the attorney and financial advisor already have an existing relationship, as that helps ensure no gaps will be left in the plan. Long-term care risk is something that all retirement plans must take into consideration. The time to best prepare for this high-risk event is in one’s ‘50s or early ‘60s. The specific approach will largely depend on the person’s net worth, health, and financials. Lastly, with the increasing occurrence of chronic illnesses in the aging population more professionals are entering the space to provide expertise.
To ensure clients have the law and financial planning on their side, Concord Wealth Management and Monteforte Law, P.C. have teamed up to provide this expertise.
Written by Nathan Fox