People are living longer and medical costs continue to keep going steadily higher making long- term care planning a more essential part of your retirement and estate plans than ever.  While most people envision retirement as a time for travel and new experiences, at a certain point most people’s senior years become heavily focused on managing health issues. 

According to the U.S. Government’s Administration for Community Living, a 65-year-old today has roughly a 70% chance of needing some type of  long-term care in their life. Fortunately, Florida is so geared to seniors and retirees it offers many special advantages with these types of health care options at a lower cost than most states.

What is Long-Term Care?

Long-term care is ongoing help with life’s daily activities. The leading cause of long-term care is dementia from stroke and Parkinson’s disease. It’s custodial care for people with chronic illnesses or disabilities such as osteoarthritis who need help getting dressed, bathing etc. It’s different from nursing care to help recover after an injury, and it’s not like end-of-life hospice care.

Is Long-Term Care Covered by Medicare or Health Insurance?

Medicare only covers up to 100 days in a skilled nursing facility.

Medicare does offer some limited in-home service, but it must be reordered by your physician every 60 days and carries certain conditions.

It’s very important to understand that the level of care provided by a Long-term Care Insurance policy or a Long-term Care Partnership Program may be very different and be much more comprehensive than you would receive from Medicare alone.

Long-term Care Insurance policies are offered by private insurance companies. Long-term Care Partnership Programs are cooperative agreements between Medicaid and private insurance companies that are funded by the federal government and administered by the States. Both can provide great benefits and savings, but require understanding and planning to prepare for which is the purpose of this article.

Medicaid in Florida only pays if you’ve spent most of your money. Most private health care insurance policies do not cover daily extended care services.

Why is Financial Planning for Long-Term Care So Important? 

Let’s face it. Most of the things we plan for in life have hoped for outcomes. Something better in our lives we look forward to. This is a very easy subject to procrastinate thinking about, especially when you are feeling healthy!

Foreseeing our future needs or disabilities that can happen at any time due to accidents is hard to assess regarding something you don’t know how much or how long you will need the care for. Long-term care costs are expensive and can easily potentially have as great or greater an impact on your net worth in your retirement savings as a stock market downturn.

Health care and long-term care costs can have a major impact on how much is left over to give to your heirs. One of the greatest gifts that you can give your family is to have made plans, that you share with them, so they know what your wishes are and that your end of life plan is in place. Poor planning can negatively impact the people you love the most!

Long-term care planning is a key ingredient of retirement and estate planning because as the clock ticks, there is no do-over when you may need it most. You need to make these decisions before you need care and while you are still capable of making sound judgments and decisions.

It’s a complicated subject that requires a Certified Financial Planner™ or Financial Advisor who can look at your finances, your savings, and your insurance policies to create a plan unique to your needs. And perhaps most importantly, the financial planning regarding how you will pay for it!

Long-term care financial planning with a Financial Planner may require setting up legal structures such as trusts for asset protection, and assigning responsibilities such as power of attorney and health care proxies to make decisions for you in case you are incapacitated. It may involve living wills, as well as advanced health care directives. Trusts can be structured to protect your assets that are complex and require the assistance of a Certified Financial Planner™  or attorney to execute.

The most important thing is realizing that by planning ahead you can have time to explore your options and choices available to you while you are still mentally and physically capable of a complicated planning process with the help of a professional.

Planning Your Care

This is not a one-size-fits-all plan as different people have different needs and risks. 

The first step is to make an assessment of your family’s medical history. Are there any known propensities to certain hereditary conditions that run in your family you are aware of?  Has anyone in your family ever needed long-term care? Knowing those risks such as for Alzheimer’s Disease or other chronic illnesses helps you assess the likelihood of possible conditions you may encounter later in life.

Identify Your Preferences in Terms of the Type of Care You Would Like

In-home care  Most people prefer remaining in their residence with in-home care coming to them for as long as possible to stay connected with what they have always known. Long-term in-home care can take the form of personal adult care services, skilled nursing care or homemaker services. The average annual costs in the United States for in-home care is $60,000.

Assisted Living Facilities  Live-in settings that provide meals, personal care and limited medical services. The average annual costs for assisted living facilities are $54,000.

Nursing Homes  Provide round the clock nursing care for the highest levels of care. The average annual costs for a nursing home are $108,000.

These are average costs that can vary across the country and by the type of care that you need. But the good news is that Florida in-home care hourly rates are among the lowest in the country. These costs can go through retirement savings very quickly which is why financial planning for long-term care is so important to be proactive and prepare for.

Talk With Your Family

Initiate discussions about long-term care with your family and loved ones. Although this may not be an easy task, it’s very important to have this discussion so there is a mutual understanding before the care is actually needed. It gets everyone on the same page and can help reduce the stress of uncertainty for family members knowing that these details, including financial considerations, are being considered.

Family caregiving can allow a person to stay in their home longer and reduce full time care costs. But this can also be expensive in terms of time and lost income for the caregiver.  AARP estimates that the average family caregiver provides 18 hours of care per week. Any expectations or understandings regarding family caregiving should be discussed for the mutual respect of all parties.

Relying on family and friends to provide long-term care may be a solution for some, but it is emotionally and physically demanding and may not be sustainable. Even a husband or wife may not be able to provide all the care their spouse needs when they need it. Planning for long-term care can be even more complicated when the spouse may need care at the same time.

Planning ahead enables families to navigate the personal, financial and emotional  challenges of providing care to loved ones. Putting your plan into writing helps get everyone of one mind understanding your wishes.

Long-term care financial planning is so important because if poorly planned, it’s expensive and can quickly deplete the money you hoped to leave to your heirs. If you don’t have a plan in place at the time of your passing the state can step in and settle your affairs for you which is never a good outcome for your heirs. 

How Will You Pay for Long-Term Care?

Funding the costs of long-term care is challenging because of so many unknowns about what type of care you will need and how long you will need it. It is important to be proactive and know what your choices are to be prepared and not be an undue burden on those who are closest to you when you need it most.

Self Funding

Most people will end up paying out of pocket for at least some long-term care costs, but medical bills can add up very quickly and cut into a person’s personal savings fast. It’s important to be mindful that if you are drawing your funding from IRA’s or 401(K) plans taking larger distributions in a single year can push you into a higher tax bracket.

Consider what current expenses you may be able to cut to afford long-term care. For example, if you need long-term care, you probably won’t be spending as much on travel or going out.

It’s always important to consider inflation rates looking forward in your planning. Medical indigency is a major cause of bankruptcy in the United States.

Home Equity, Reverse Mortgages & Selling Your Home

Using the equity in your home for a home equity loan, a reverse mortgage or even an outright sale are three ways to gain access to money with your home. Selling your home can free you up from property taxes, utilities and upkeep expenses.

Reverse mortgages allow seniors to remain in their homes and still access the home’s value. It enables you to cash in on the equity of your home to cover the immediate costs of your medical care for you or a loved one. You must be 62 years old to qualify, along with some other conditions.

Using home equity loans or reverse mortgages have the advantages of freeing you from having to draw too much from your pretax IRA or 401 (k) plan that could bump you into a higher tax bracket.

Long-Term Care Insurance

Long-term care insurance helps cover some or all of the costs of these services.  Knowing the basics of the insurance plan, from the details of your coverage to the elimination or waiting periods, and benefit periods, rising health care costs and the potential for rising premiums on many policies - all of which are key for making sure the policy you choose is a good fit with your overall financial plan. 

Long-term care insurance can make a lot of sense for someone with a known hereditary condition that runs in your family or if you want to make sure that you, your spouse/partner or children can still live comfortably while you are able to pay for the care that is needed. 

Certain types of long-term care insurance premiums are tax deductible.

Premium costs vary based on age, health status, and policy benefits. Premiums for a new policy get with age and it’s less expensive (and possible) to acquire when you are still healthy. Once your health requires you to need care, you will no longer qualify for a new long-term care policy. Most insurers offer preferred health discounts of about 10% to people in good health. 

The most cost-effective age to buy a long-term care insurance policy is between the ages of 55 and 65, but is often purchased later. Most long-term care insurance claims are made with people in their 80s.

Annuities and Annuities with Long-Term Care Riders

An annuity is an insurance contract issued by insurance companies that pays a regular guaranteed income to a retiree, usually until death, due to them having made an initial upfront payment. It’s a low risk, guaranteed income for life financial product that can reduce your current taxes and provide peace of mind.

Long-term care riders, which is an add on you acquire at the time the annuity is purchased, are available at the time of purchase with some annuities. This can be a very cost effective way of combining the financial investment of an annuity with long-term care coverage without needing to acquire a separate insurance policy.

If you don’t end up using the long-term care option, you still have the payments with the annuity that may be guaranteed to last your lifetime. If you have an existing health care issue, you may find it easier to acquire long-term care coverage as part of an annuity rather than applying for a separate long-term care insurance policy.

Hybrid Life Insurance with Long-Term Care

Life insurance in many ways is the opposite of annuities in that annuities pay during a person’s lifetime, whereas life insurance usually only pays a contracted sum upon a person’s death.

But there are newer life insurance policies that are becoming increasingly popular called hybrid life insurance policies that combine life insurance with traditional long- term care insurance policies. If the long-term care benefit is not used, your beneficiaries will receive the full death benefit.

Government Programs

Medicare and Medicaid are the two federal government programs that cover limited long-term medical care, such as short term skilled nursing following hospitalization. 

Medicaid provides some coverage for individuals with low income and assets, but you must have spent most of your money to qualify. The person receiving care must have depleted their assets to roughly $2000. Married couples are allowed more. 

There are legal structures such as trusts or annuities that can allow the transfer of assets and lower the countable assets to qualify for Medicaid but these are complex and require the services of a Florida attorney to create.

Medicare administers the Program of All-inclusive Care for the Elderly (PACE) that provides wellness services to help seniors stay in their homes longer rather than going to a nursing home.

On the state level Florida administers two different programs that provide long-term care as part of its Statewide Medical Managed Care: 

• The Long-Term Care (LTC) Managed Care Program

• The Managed Medical Assistance (MMA) Program

   

Long-Term Care Partnership Programs

Long-term Care Partnership Programs are cooperative agreements between Medicaid and private insurance companies that are funded by the federal government and administered by the States. They provide two key benefits to individuals who qualify. 

Beneficiaries are allowed to keep assets above the normal Medicare qualifying limit for the amount that equals the amount of their long-term care insurance paid out. Assets are also protected from Medicaid Estate Recovery, which normally tries to collect reimbursement for long-term care through the estate of deceased Medicaid beneficiaries.

Applicants who wish to particlpate in the program need to buy private long-term care insurance while they are still healthy because insurance companies screen applicants for health issues. This is important to consider for people who have health issues that run in the family like Alzheimer’s disease to purchase this before the symptoms show.

For more information on the program contact your local Florida Medicaid Office.

County Level Social Services

Go to your county website and see what type of services are offered at the county level. Local community agencies and nonprofits may also offer types of long-term care support. The important thing to remember here is to look at the whole system of support, not just financial but emotional social support, to help you be proactive and know your options.

Veteran’s Benefits

If you are a veteran or family member of a veteran the Department of Verterans Affairs (VA) can be an invaluable tool in your long-term care financial planning. Their website page on Geriatrics and Extended Care outlines these programs.

The VA does not pay for room and board in residential settings such as Assisted Living or Adult Family Homes. However, you may receive some Services at Home and in the Community program support if you are living in a residential setting. The VA also provides Community Living Center (VA Nursing Home) or community nursing home care.

Most Common Mistakes to Avoid

Postponing Planning  This is an easy subject to put off thinking about! Waiting until you actually need the care limits many options or makes them more expensive or you will probably not qualify for coverage. You want to think through your plan while you are still of a sound body and mind to make important, potentially very expensive decisions.

Underestimating Costs  Long- term care costs are often more than people anticipate. Medical costs are continuing to increase every year which must be factored into any plan as well as inflation.

Ignoring Government Benefits It’s very important to consider all of your potential government support. Both financial and emotional support through programs on the federal, state, county and local levels giving assistance to seniors.

Not Seeking Professional Help  Long-term health care financial planning is a very complicated subject that requires knowledge and resources beyond the average person’s skill level to navigate. This is particularly true understanding all the potential financial and tax angles working with a Certified Financial Planner™  who knows from experience the best financial solutions such as trusts or legal structures for your specific needs.

Failing to Keep Your Plan up to Date  Remember your plan is always only a snapshot in time of how you perceive your finances and health care needs at any given moment. This can change over time, both what type of care you need and how it will be funded. Periodically review your plan and make sure it is still up to date with your most current situation and finances.

Conclusion

Long-term care financial planning is a crucial component of Florida estate planning and retirement security. Having a clear plan that understands the costs and various methods of paying for care requires the professional guidance of a Certified Financial Planner™ to know your funding options and tax structures to help you preserve assets.

Long-term care costs can quickly deplete your savings if not planned for. One of the greatest gifts you can give your loved ones and people closest to you is security in knowing you have a plan they understand that aligns with everyone and preserves your assets for  your heirs. 

This isn’t only about money. Long-term care financial planning is a major quality of life issue for everyone involved. It relieves financial and caregiving responsibilities for your family and allows you to keep your independence and dignity!

Would You Like to Know More?

Steven Fenyves, CFP®, CFS, founded Valued Wealth Management in 2005. He and his team of professionals help successful professionals prepare for retirement on their terms and stay comfortably retired. They also design corporate retirement plans to serve businesses and their employees.

Steven graduated from Hofstra University with a BA in Accounting. He holds the Certified Financial Planner™ (CFP®) designation and he is also a Certified Fund Specialist (CFS).

Steven is a member of the Greater Boca Raton, Florida Estate Planning Council.

For more information or to schedule an appointment at our Boca Raton, Florida office please contact:

steven@valuedwealth.com
(561) 392-4646