Paying for Long-Term Care
As you navigate retirement and the aging process for yourself or a family member, it can be daunting to figure out how to cover the costs of Long-Term Care (LTC). In addition to the tips discussed here, please also see our “Retirement Basics” guide. LTC costs could approach $500,000 (and possibly exceed) in some states. Let’s discuss how it can be funded if you do not currently have LTC insurance.
(1) Choose the appropriate LTC solution. Aside from a nursing home, other options include hiring a home health agency, adult day services and moving to a residential group home or an assisted living facility. Assisted living can be less expensive than a nursing home if the person doesn’t have medical needs. Look at this as controlling the expense, choosing the right option can help save money in the long run.
(2) Fund it yourself. If you are not currently in an LTC situation, live on less so you can save and set aside more money periodically to invest, whether in a 401(k), an IRA or a non-retirement investment account. Also look at other assets or income streams that you have such as:
(a) Social Security or a pension can pay for care. Many people can use their Social Security check to first pay this bill. It is guaranteed income, and this, paired with other guaranteed income such as a pension, can help fund LTC costs.
(b) Retirement account withdrawals. Monies withdrawn from a retirement account will increase your taxable income, however the LTC expenses may provide a medical expense deduction. This article “Deduct Expenses for Long-Term Care on Your Tax Return” from Kiplinger discusses the topic. Effectively, you could turn your retirement account into a tax-free health savings account.
(c) A home sale or a reverse mortgage. If neither spouse is living at home, a sale may be the solution. However, if one spouse is still living in a home, a reverse mortgage might be an option to help pay expenses for the other’s LTC.
(3) Apply for Medicaid. The rules for Medicaid assistance (limited to people with low incomes and assets) differ in every state. The federal government will pick up the tab for long-term care services, but only if you have limited income and your countable assets are typically less than $2,000 as an individual or less than $3,000 per couple. Asset transfers in the past few years may be problematic. Due to the state variations, a lawyer’s assistance may be prudent.
(4) Look into the Veterans Aid and Attendance program. This little-known Veterans Administration offering provides up to $1,830 per month for anyone who has served as little as 90 days in the military during a time of war and up to $1,176 for a surviving spouse. There are requirements related to income and asset maximums. It can significantly reduce the LTC burden. Once you’ve been approved for a Veterans Affairs pension, apply for the benefit by writing to your Pension Management Center.
(5) Look at insurance solutions. There may be several insurance solutions possible which depend on how close you are to needing LTC.
(a) Get LTC insurance through a group plan. If you take a job that offers LTC coverage as a benefit, you can be enrolled regardless of your health history. Enroll in it because then you may have the opportunity to carry it forward with you when you leave the company.
(b) Invest in a LTC care annuity. With an annuity, you pay a lump sum, and in return you get a specified amount of income paid to you at set intervals for the rest of your life. LTC annuities offer special provisions to help pay for LTC expenses. Refer to this article for more information – “5 Things you Need to Know about Annuities and Long-Term Care.”
(c) Consider a hybrid life insurance/LTC policy. While LTC insurance providers are interested in your likelihood of needing assistance with daily living, life insurers are focused on whether you are likely to die at an early age. It may be easier for some people with chronic conditions to qualify for life insurance, and if so, some policies come with an LTC rider.
(d) Buy a policy for short-term care. Unlike LTC policies that can provide years of coverage, short-term care policies typically will cover you for a year or less. The benefits are smaller than a traditional LTC product, but may still provide some help.
(e) Look for whole life insurance policies and savings bonds. Cashing in savings bonds could help with LTC expenses. If an older whole life policy has cash value that won’t be needed, the policy could be used for an LTC life settlement where the proceeds from the sale are used to fund LTC expenses.
(f) Activate a chronic illness rider. If there is a term life or permanent life insurance policy with a chronic illness rider, you might have another funding source. The triggers for chronic illness riders are often the same as the triggers for LTC – you can’t do two of six activities of daily living without assistance or you need assistance for cognitive impairment.
(6) Consider your faith community. Some religious affiliations and congregations have foundations for members needing help paying for LTC.
The key thing to remember is that even without LTC insurance there are ways of addressing this need for both yourselves and your parents. After recognizing this, the next step is to seek help from qualified individuals during what can be a very stressful time. Better yet is to recognize this need and to have a plan before the costs are imminent. In an upcoming newsletter, we will discuss the various types of LTC insurance that are available to be a part of that plan.
As always, if you would like help with this topic or anything else, reach us anytime at (833) 888-0534 x2 or info@westbranchcapital.com
The views and information contained in this article and on this website are those of West Branch Capital LLC and are provided for general information. The information herein should not serve as the sole determining factor for making legal, tax, or investment decisions. All information is obtained from sources believed to be reliable, but West Branch Capital LLC does not guarantee its reliability. West Branch Capital LLC is not an attorney, accountant or actuary and does not provide legal, tax, accounting or actuarial advice.
About The Author
Michael DuBois
Mike is a Managing Director and Personal Risk Management Specialist. Mike brings forty years of insurance industry experience to West Branch Capital. He will focus on advising clients on annuities, life insurance, retirement products, disability income, long-term care insurance and other insurance products. He will evaluate the quality of the options available to clients and make independent and objective recommendations as part of the firm’s holistic advisory approach to clients’ wealth and risk management needs. In keeping with the firm’s tradition, he will not “sell” any insurance products or policies. Prior to his retirement as an actuary from MassMutual in 2019, he was a regular speaker at actuarial conferences, served as an advisor on studies by the Society of Actuaries (SOA) and participated in the education and examination committees of the SOA. Mike is a graduate of Rensselaer Polytechnic Institute, a Fellow in the SOA (FSA) and a Member of the American Academy of Actuaries (MAAA).
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