Can You Afford Long Term Care?
On the radio someone texted in a question for me that I want to make sure we answer for everyone. The question was, “How does long term care fit into my retirement plan?”
As we think about this, first let’s define long-term care. According to the Medicare Resources site, Long-term care generally refers to non-medical care (ie, custodial care) for patients who need assistance with basic daily activities such as dressing, bathing and using the bathroom. Long-term care may be provided at home or in facilities that include nursing homes and assisted living.
This means that long-term care is not just nursing homes. It could be home health care, assisted living, or any time where you need extended care. The fact is that three out of every four people today over the age of 65 will need some type of long-term care.
No matter the type of long-term care that you may need the question becomes, “How do I pay for this?”
We all know that care can be costly so I think that’s the intended question from the text message I received on the radio. He wanted to know, “Do I have to have insurance? Do I have to have a plan? What is the best way for me to plan for this?”
What Is The Best Way To Plan?
Before I answer that, I want you to think about something for me. Close your eyes and think about four buckets on the table. One bucket has big rocks, a second bucket has smaller rocks, a third has sand, and a fourth has water. You may know where I’m going with this analogy, as it has been used in leadership seminars and was just in one of the business books that I’m reading.
I think exercise applies here too, so let’s continue. Now we have these four smaller buckets and one large bucket. The goal is to get all four of the smaller buckets to fit into the large bucket.
If we start with water, then dump in the small rocks, and then the bigger rocks, what happens? It overflows. But, if we put in the big rocks first, then the smaller rocks, followed by the sand, and finally the water, then all of a sudden we can magically fit all four buckets into the one larger bucket.
Understanding What Long-Term Care Means For YOU
When it comes to planning we have to think about this, whether it’s retirement planning or any other planning, what is the rock? What are the rocks that we will be adding to our larger bucket?
Let’s use retirement planning as our example. When it comes to retirement planning, one rock that I know has to go in first is retirement income. You have to make sure that you have your retirement income taken care of.
You may need long-term care, it is probable that you will need some type care in the future, but I know with certainty that you’re going to need retirement income. So, that has to be one of the first big rocks we put into the larger bucket.
Now, not all of the rocks you throw in have to be financial. They could be related to long-term goals, other retirement plans, life plans, or what you want your legacy to be. Regardless of what it is, those are the rocks that have to go in first.
Long-term care is usually a smaller rock or sand depending on you and your plans. You may be planning to leave an inherItance or you might want to make sure that your kids and grandkids are taken care of versus spending all you have on long-term care, so it is important that you plan to figure out what your long-term care will look like. Planning for long-term care pairs well with what I talked about last week in my blog, which is Living and Leaving a Legacy. (To read more about Living and Leaving A Legacy, click here)
How Do We Pay For Long-Term Care?
When thinking about how we might prepare for and pay for long-term care, you have a couple of options.
You can do the traditional insurance, which can be costly, and if we don’t have our income rock taken care of, then it can end up hurting our retirement and take-home pay. So once we know what our retirement income is going to be, then we can look at options to see if traditional long-term care is the route you should take.
Maybe paying the traditional insurance premium is not something you had in mind. If that’s the case, you might ask if there is a legal route you could take to help protect your assets, like a family farm or land. But, when you go the legal route, the protection is limited.
Our other option then is to self-insure. To do that alone, it may end up being whatever you’ve chosen to put aside to dedicate to long-term care.
But, there is a smarter way to self-insure and that’s by leveraging some of your assets with financial products like life insurance, annuity, or some type of investment. This gives you a higher payout if you need it for long-term care.
Again, we can’t think about this unless we know that we’ve got our retirement income taken care of. This means that you’d be using all of your retirement income for long-term care, then it’s not a good option.
However, if your retirement income rock is taken care of and you’re getting the income that you need, either from other guaranteed sources or from a portion of your Investments, then the life insurance route is a great option.
When you think of life insurance, you may think of it as a death benefit. However, if you choose to do the life insurance option for long-term care then it’s going to look a little different than a typical life insurance policy.
We are looking to build up the living benefits so that we have a good amount available in cash if we need it. Otherwise it is going to give us the death benefit, which can be used as a long-term care benefit.
In fact, sometimes a long-term care benefit is even greater than the death benefit. This ends up being a win win win win. If I need cash back, I can access some, if I never need long-term care it is going to go to my beneficiaries, or if I do need help with some type of long-term here I can leverage what I have to create more to pay for the long-term care.
Is My Long-Term Care Plan A Rock or Sand?
Where long-term care goes in your plan really depends on what your rocks are in your big retirement plan bucket.
If you’d like help with determining what your plan should look like, or if you have more questions, please feel free to schedule a call. We would be glad to talk you through it and make sure that you put the rocks, sand, and water in your bucket in the right order.
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