“Like death and taxes, long-term health-care expenses are becoming another certainty in life.” Therefore, planning ahead will help to greatly reduce the stress of paying for long-term care should the need arise. According to a recent article, the average cost of health care for a healthy 65 year old retiring couple is just under $395,000. The article goes on to say that 74% of American couples are worried about how they’re going to pay for unexpected health related costs during their retirement years. Outlined below are five options available to help you meet your long-term care needs.1
Long-Term Care Insurance (LTCI)
“Long-term care insurance is designed to cover, for a set period of time, health-care-related expenses such as at-home care or assisted living, which may not be covered fully (or at all) by other types of insurance.” LTCI is expensive and premiums can increase. It’s also a complicated product to understand with various structures and policy options.
The article gave a real life scenario exemplifying how important LTCI can be. In the example, a woman’s husband planned well for retirement; however the one thing he overlooked was LTCI. Her husband developed dementia and eventually had to be placed in a home. Now the woman is struggling to afford to stay in her home.1
Hybrid Policies
Hybrid policies combine a couple products into one. One option is combining LTCI with a cash value life insurance policy that could be used towards long-term care costs. Another option is combining LTCI with an annuity that has a long-term care rider. The advantage of these hybrid policies is that the premiums won’t increase. Plus, any money not used for health care can be left to heirs. However, these products are expensive, complex and can be less flexible since you’re getting two products in one.1
Medicaid
The challenge with Medicaid is that you only qualify once all your other assets have been depleted. This leaves you with nothing left for your own care or for your heirs. According to the article, “one way to preserve your assets and still qualify for Medicaid is to set up a “Medicaid-proof trust” that puts your assets in an irrevocable trust to be passed on to your heirs when you die.” However, these trusts are complicated. The article also points out that in order for these types of trusts to be effective, it’s important for them to be written to the specifications of laws and regulations. Another critical point to be aware of is that assets need to be moved into the trust five years before applying for Medicaid.1
Self-Insuring
Paying for your own health care expenses is an option; but this strategy is risky and best suited for high net worth individuals. Paying out of pocket means not getting to enjoy your money now while you’re younger, with the hopes of enjoying it later during retirement. It could also mean spending down your nest egg should you need the funds for long-term care. Another potential downside to this strategy is that “…there could be major tax implications and penalties involved if you are liquidating positions in stocks, bonds or in a qualified plan such as an individual retirement account or a 401(k) plan in order to pay your medical bills.”1
Reverse Mortgage Line of Credit
The article discusses using home equity as another way to fund care, such as a reverse mortgage line of credit. “It can be held as a ‘standby’ line of credit…When the funds are needed, they come out tax-free, since they are loan proceeds.” Another benefit of a reverse mortgage is that the unused portion of the line of credit grows over time. This feature gives you increased access to borrowing power. Plus, a reverse mortgage line of credit can’t be canceled or reduced as long as the borrower meets the obligations of the loan. It’s important to be aware, however, that the upfront costs of a reverse mortgage can be higher than for a home equity line of credit.1
As with any financial product, it’s best to talk with a trusted advisor to ensure the option you choose is the right fit for you. If you’d like to learn more about reverse mortgages or want to find out if you’re eligible, call 800-218-1415.
1 5 Ways Retirees Can Control Long-Term Health-Care Costs – cnbc.com, by Jennifer Woods, 7/11/16, http://www.cnbc.com/2016/07/11/5-ways-retirees-can-control-long-term-health-care-costs.html?&tc=eml.
Author: Meredith Manz