Talk about money: Time to think long-term

November is long-term-care awareness month, so I thought it appropriate and important to share some thoughts on a subject I’m passionate about: the frequent need for custodial care and how it should be adequately planned for.
Long-term care can be summarized as needing assistance with all activities of daily living for a period longer than 90 days. Rather than boring you with a technical explanation, I find it helpful to have you imagine how your own parents took care of you during the first four years of your life. Chances are, if you live long enough, you will require the same level of care.
The statistics are genuinely eye-opening. Seventy percent of people over age 65 will require long-term care services at some point, and 40 percent will need nursing home care. (The website www.longtermcare.gov is a good source of more info.)
Although these figures are illuminating, they shouldn’t come as a great surprise, given increasing life expectancies and rapid advances in modern medicine. The fact is, many afflictions that at one time killed us don’t — rather, they now debilitate us, and for prolonged periods. Yet, knowing all of this, there seems to be a willful neglect to adequately plan for this type of care, even among those who consider themselves responsible, long-term savers and planners.
According to the 2009 Long-term Care National Poll findings, 75 percent of retirees have no plan of care in place for themselves or their loved ones. Perhaps even more disturbing, and a general commentary about the lack of financial literacy in this country (with the exception of you, dear reader), is that 44 percent of respondents from this survey incorrectly assumed Medicare or their private health insurance would pay for long-term care, when these programs generally won’t.
As I routinely tell clients, one of the biggest variables and unknowns in any retirement plan is whether the need for this type of care will arise.
The median cost of a nursing home stay in the Bay Area is about $86,000 per year. Care received at home can be expensive, too. Therefore,it’s imperative to have a plan in place, whether or not the actual need for care manifests.
There are really only four options when developing a plan of care:
**Self-insure.
**Depend on family members.
**Spend down assets until you can go on state welfare.
**Buy some form of insurance.
Self-insuring might work for some wealthy individuals, but this option provides no asset protection if you require care and can significantly diminish your wealth and any legacy you planned to leave to your children and grandchildren.
The second option is to rely on the support of a family member. This is generally the most unrealistic option, unless you have a family member willing to provide 24-hour assistance, let alone one who is physically capable of moving you. Anyway, I find that most people would rather not burden their families and prefer to avoid this scenario altogether.
The third option is to spend down your “non-exempt” assets and go on welfare (Medi-Cal). But this often doesn’t provide quality or desirable care and also forces you into a nursing home — again, something most people seem to want to avoid if it’s practical.
The fourth and generally best option is to purchase some form of insurance, especially if you are in your 50s or 60s and in relatively good health.
As the awareness and need for this type of insurance continues to increase, insurance companies are becoming more creative in the products they offer consumers. Of course, traditional long-term care insurance still exists, but now, many life insurance products include long-term care “riders” that will essentially prepay the death benefit if you require care. (Clients like this because they know the insurance will pay them or their heirs one way or another.)
There are also many annuity products that will increase (and sometimes double) your payout if you go on claim. The government also recognizes the growing need and has worked with insurance companies to offer “partnership” policies for better asset protection and a higher level of consumer protection. And there are many new and different tax deductions and tax-free ways to pay for premiums these days.
In a follow-up to this column, I will review these various products, consider when they might fit, and provide some tax tips to help offset the cost of insurance and help you develop a plan of care.
Orion Melehan is a certified financial planner for LMC Financial Services in Scotts Valley. Contact him at 454-8042 or or***@lm**********.com.
Securities and investment advisory services offered through SagePoint Financial Inc. member FINRA/SIPC a registered investment advisor. LMC Financial Services is not affiliated with SagePoint Financial Inc. or registered as a broker/dealer.