Health & Fitness
3 Reasons to Plan for Long-term Care
Joe Lucey provides reasons for creating a sound financial plan for long-term care which is projected to affect the vast majority of Americans.
In , I wrote about the $300,000 per year mistake that financial maven Suzy Orman and her mother made regarding long-term care planning. In hopes of keeping you from making such a costly blunder, I will share three reasons to consider long-term care planning.
Reason #1: Long-term care expenses are more likely now than in prior generations. While most Minnesotans can name at least one person they know who has blown through their life savings due to the costs of chronic care, we tend to live in the disillusion that we are different. Remember, 70% of of people 65 years of age or older will require this kind of care in their lifetime. While medical advances have done wonderful things to extend our lifetime, the same ailments which used to kill us, will now often extend our need for health care.
Reason #2: Long-term care planning provides tax-efficient cash flow. With long-term care expenses nearing an average of $75,000 per year, and growing at rates that out-pace inflation, all families should consider ways to provide for these crippling expenses. Long-term care is not about asset protection. Long-term care is about identifying a pool of financial resources that can easily be converted into tax-friendly cash flow to cover these expenses. For example, consider the family who comes into our Secured Retirement Advisor offices planning to pay for care out of their accounts without a tax-efficient plan. For a married couple, this additional $6,000 per month expense will need to come right out of savings.
Reason #3: Long-term care planning protects the surviving spouse and keeps the family together. One common misconception is that Medicare or Medicaid will provide care when needed. The reality is that Medicare can only provide care for a short period of time for rehabilitation reasons with the expectation that the patient will get better. Medicare should only be relied upon in short-term situations and is an unlikely long-term solution for most long-term care situations.
The alternative program where the government takes over payments is the Medicaid program. However, Medicaid doesn't kick in until you qualify, which is a nice way of saying you must go broke first. For a single person the calculation is fairly simple. In order to qualify, they must "spin down" their available assets to $3,000. The calculation to determine broke for a family or married couple is a little more complicated, but in short, most families attempting to qualify for Medical Assistance Minnesota will have to spend down half of their available assets or down to $113,000 - whichever is greater. While available assets exclude some assets such as the primary home, most other assets are included in this calculation. The IRAs, cabin up north and the family business are for the most part, available for spin down. So for families that rely on this type of planning, a spouse will generally end up spending additional years in near poverty following the end of a chronic illness for the ill spouse. In order to protect the assets for the healthy spouse, you must have a better plan than self-paying.
Having a long-term care plan in place also keeps a family together. Many readers probably know about the family where the two children no longer get along following the death of a parent. When a parent’s illness is involved, the probability that the kids will have disagreements only increases. At Secured Retirement Advisors, one common scenario we see is when mom needs care, and the daughter without the "career" or the one who lives the closest, or has the law or medical background, or who is the oldest will end up providing 90+ percent of the care. As a result, this child resents the fact that they are providing all of the care, and the other children are critical of how the finances are being spent providing for that care. The other siblings cannot believe that those expenses really cost that much or that the same care couldn't have been provided for less expensively. In some cases, they do not understand why they need to pay for the in-home care when the caregiver should be taking care of all if it. Identifying a tax-free pool of resources that can reduce the financial stresses between the kids when a parent becomes ill, often helps to keep the family together instead of fighting amongst each other long after the parent is gone.
There are a variety of means for structuring long-term care planning. People often misunderstand the difference between indemnity and asset based long-term care planning options available so I will spend some time explaining those in a future article.
As comprehensive financial planners, our role when working with our clients at Secured Retirement Advisors is much more than simple investment planning (managing stocks, bonds, mutual funds, annuities, etc.), we also guide our clients in other important financial planning areas such as tax, estate and income planning. Our advisors work with our clients to not only maximize profit potential when the stock markets are doing well, but also protect them from potential financial risks so that they can continue to spend with confidence in their retirement years. Feel free to visit us at www.securedretirements.com and help yourself to our educational materials. If you would like a complementary “3 Step Review” of your own retirement plan, call Secured Retirement Advisors at 952-460-3260.
