Do You Really Need Long Term Care Insurance?

February 16, 2018

Long term care (LTC) insurance can be an important part of retirement planning and one that many of us postpone doing anything about because, well, it is depressing to think about. It is also a complicated insurance product. And there is the added expense, of course. Thinking about it might make you feel a little bit like Goldilocks: Too much or too little? Too early or too late? Too expensive or too cheap? Given so many convenient and seemingly built-in excuses to put off making this decision, no wonder few people are eager to tackle this part of one’s financial plan.

First of all, do you even need it?

Perhaps a good question to start with is: Do you actually need this insurance? If so, when is the best time to buy it? Purchase it too young and you spend years paying into something you very likely won’t use or sacrificing dollars that could have been spent elsewhere. Buy it too late, and it might be incredibly expensive or even unobtainable. Surely, there must be something resembling a Goldilocks type of solution to buying just the right amount of coverage at just the right time?

When to buy LTC

As with life insurance, LTC insurance premiums tend to be lower during our younger, healthier years. However, that means paying those premiums for many years during which we are statistically unlikely to need the type of care we are insuring. Most of the quoted statistics regarding nursing home care (whether provided by family members or in an actual nursing home) focus on age 65. For instance, 68% is the probability that individuals age 65 or older will begin to suffer from cognitive or physical impairment that would lead to using their long-term care insurance.

The best age to buy

Does this suggest we should all wait until our 65th birthdays to buy LTC insurance? Unfortunately, that could be an expensive mistake. Given the odds of needing it go up quite a bit after 65, so does the cost of the insurance. Instead, the sweet spot for buying long term care insurance may lie somewhere between ages 55 and 60 for many people.

Your gender and marital status matter too

According to a 2018 price analysis, typical insurance costs for singles and marrieds can vary considerably between ages 55 and 65. Among single males, the cost increases only slightly between 55 and 60. However, after age 55, the cost begins to jump considerably for women and married couples.

The other determining factor

In addition to your age and health status, another consideration for purchasing long-term care insurance is your relative level of wealth. Generally speaking, many financial professionals suggest that those with a net worth of less than $200,000 may be better off skipping the LTC insurance altogether. The same can be said for people with a net worth in excess of $2 million or so.

People on the lower end of that spectrum likely would be able to qualify for Medicaid fairly quickly if they enter a nursing home, and those who are wealthier could self-insure (aka just pay out of pocket should the need arise), rather than pay for coverage they may never need.

You still may not need it

What if your net worth lies somewhere in between $200,000 and $2 million or more? That doesn’t suggest you rush right out and buy a LTC insurance policy, either. According to a recent study conducted by the Center for Retirement Research (CRR) at Boston College, previous assumptions about how many people actually need LTC insurance may have been significantly overstated. These new insights are based on a fresh look at how long people actually spend in nursing home care and assumptions about how Medicare (not to be confused with Medicaid) plays a role in LTC health coverage.

Don’t count out Medicare

Although it is widely assumed that Medicare will not cover nursing home costs (a “fact” some insurance sales people seem to enjoy touting), this is not entirely true. Medicare can actually pay for up to 100 days of care in a skilled nursing facility or long term care hospital following a hospital stay of at least three days. Although Medicare does not pay for care related to chronic (permanent) conditions such as dementia, it can cover a limited amount of long term care services related to conditions from which you are expected to recover (e.g., following surgery).

Consider how long your stay might be

While it is true that 44% of men and 58% of women may ever use a nursing facility, the CRR also reports that the average duration for these stays tends to be relatively short. The average stay for men is around 11 months and just under 1.5 years for women. Given the relatively short average stay and the availability of Medicare to cover what could be a significant portion of that stay, the CRR further concluded that purchasing LTC insurance actually made economic sense for only about 25% of consumers (19% of men and 31% of women).

There is more to the LTC insurance decision than the numbers, of course. Your specific financial situation, family dynamics, personal priorities, family health history, etc. all blend together to help shape your individual decision. However, it’s a good idea to consider all of the factors when deciding whether or not and when to purchase coverage.

 

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5 Common Myths About Gifts

March 30, 2017

Whether I’m facilitating workshops and webcasts or talking to people individually, one of the areas that I’ve found the most confusion around is a topic that we all (hopefully) have some experience in and that’s gifts. Some of the misconceptions are harmless, while others can result in significant financial losses or missed opportunities. Here are some of the most common myths about gifts I hear:

To be a gift, you have to completely give something away. That’s how we generally think about a gift, but it’s not how the law looks at it. For example, if you add someone’s name to an account or a property deed, that’s considered a gift and subject to everything else in this blog post even though you yourself retain control over that asset. Assigning someone certain rights in a trust can be considered a gift as well.

Gifts are taxable to the recipient. Intuitively, this makes some sense. However, the income tax doesn’t consider gifts taxable income unless it’s a “gift” from your employer that could be considered part of your compensation. Also, the gift tax is actually a tax on the giver, which brings us to…

Being subject to the gift tax means you owe money to the IRS. First of all, let’s define “subject to the gift tax.” Gifts to charities and gifts in the form of payments directly to medical or educational institutions on behalf of someone else are not subject to the gift tax. The same is true for gifts of up to $14,000 per person per year. That means if you and your spouse have 5 kids, you can each give each of them $14,000 for a total of  $140,000 in 2017 without filing a gift tax return.

What if you give more than that? The good news is that you still likely won’t owe the IRS anything. That’s because any taxable gift reduces the total amount you can give tax-free over your life and death, which is currently $5.49 million. If Warren Buffett’s only taxable gift were to give $1,000,000 to you (above the $14,000 exemption), his $5.49 million exemption would be reduced to $4.49 million. Only after he’s given away another $5.49 million in taxable gifts would he have to pay the IRS.

A gift can save money from being spent down to qualify for Medicaid coverage of long term care. There is some truth to this one because giving away assets can indeed reduce the amount you have to spend down before being eligible for Medicaid. However, any gifts made within the last 5 years (formerly 3 years) still have to be spent down so you have to give the assets at least 5 years in advance. One option is to buy a 5 year long term care insurance policy so you can give assets away if you need care and then qualify for Medicaid after the insurance policy (and the 5 year time period) expires.

Giving assets away is more tax-advantageous than passing them on. If you give an asset away and the recipient sells it, they have to pay a capital gains tax on all the gain since you purchased it. However, if they inherit it, they only have to pay taxes on any gain from when they receive it. All the gain during your lifetime goes untaxed. That’s a pretty good reason/excuse to let your heirs inherit an asset rather than giving it to them now.

Hopefully, this will help you give and receive gifts with more confidence. For more complex questions, you might want to consult with a qualified tax professional. If you’d like to practice your new gifting skills but aren’t sure who to give assets to, feel free to send them my way…

 

Does Your Aging Parent Need Help?

December 06, 2016

My father had a presence about him that made him seem larger than life. As my father started aging, we still saw him as invincible and initially ignored the signs that he could no longer take care of himself. As we celebrate this holiday season, take the time to observe your parents as well as any other elderly relatives to see if they may need help. My sister-in-law was the first to notice the changes in my dad so be sure to involve your spouse in the observation too. Look for the following warning signs:

1. Home in Disrepair – As you pull up to your elderly relative’s driveway, look for signs of disrepair. Does the exterior of the home need painting, is the driveway cracked, are newspapers piling up. (It may be a sign that she cannot move around as much).

As you enter the home, look to see if the home is more cluttered or disorganized than normal. Is there an odor? Is there a lack of food (he could have problems paying for food or he may not be able to travel to buy food) or does he have a lot of expired food? If you find there is a problem, consider talking to your relative. It may be as simple as helping them once a week or month or hiring a caregiver or it may be time to look for an assisted living facility.

2. Deteriorating Physical Health – Has the personal hygiene of your relative changed? Has she experienced unusual weight loss? Does he have unexplained bruising? (My father had bruises due to falling, but did not want to tell us.) Is she more tired than normal?

Does he have more bottles of medication than you remember? Is she actually taking her medication. (You can look at the date the medication was given and check the bottle. If it’s full after several weeks, she may not be taking her medication. If it’s empty after a month, she may not be able to travel to get  her prescription filled.)

Is he struggling to move around his home? First step would be to talk to your relative about his health. If possible, go to a doctor to understand any health challenges and if there is a need for a caregiver.

3. Cognitive Impairment. If you can, check his mail for late notices, bounced checks and collection notices. (This could be due to a lack funds as well.) These could be signs of forgetfulness. Does she seem to be confused or uncertain about doing tasks that were once familiar – cooking a favorite meal, playing a familiar musical instrument, recounting a favorite story she has told for years and/or forgetting a favorite song? Do you notice a change in his mood – more closed, angry, depressed or unusual mood swings?

If you have concerns about cognitive impairment, talk to your parent and if possible, talk to his physicians about getting your parent or elderly relative evaluated.

As I write this, I know firsthand that not all parents are cooperative. If your parent is resistant to talking about your concerns, be patient. Websites like AARP offer a wealth of resources on care giving. An aging life care professional  (sometimes known as a geriatric care manager) is a specialist trained to help with the care of the elderly. Ask questions to get to the root of why they are resistant.

Ultimately, it was a team effort that convinced my father to go to an assisted living facility where he is doing great. We got a lot of people involved, including clergy and a social worker, to talk to our father. The key is to respect how your parents feel, lovingly but persistently keep talking, involve as many people as you need, and take it slow. Consider using the holiday season not only as a time to spend with your loved ones but also to uncover a need for help. This could be the greatest gift you give your family member.

 

 

Helping Aging Parents Decide Where to Live

September 13, 2016

As a Generation Xer, it’s amazing how the conversations I have with my friends have changed over the years. At first, the conversations were about who was dating who and the latest episode of The X-Files (the original one). Then it was all about the baby pictures, which quickly turned into prayer vigils as to how we are going to survive the teen years.

Over the last few years, the conversations have been about our aging parents and how we can help them make life decisions, such as where they will live once they retire. If your parents are healthy and can perform activities of daily living, then an independent living facility like a senior apartment/condo may work. These types of homes can be subsidized for those with low income or private pay only.

If your parents have health issues that requires monitoring and struggle with some of the activities of daily living but do not need 24 hour nursing care, then an assisted living facility may be an option. Since there is no uniform standard for assisted living facilities, call and ask about what services are offered and the living arrangements. Another option is for your parents to stay at their home and hire a caregiver for basic non-medical care. If your parents have a condition that is progressive such as Alzheimer’s or that requires extensive nursing care, then a nursing home may be a consideration. Consider using checklists like the one from the Alzheimer’s Association to go over questions to ask.

As you start to evaluate which one is the best option for your parents consider the following:

1. How much can they afford? Assess all their income resources. Some senior facilities are private pay only, and some are income based. If your parent’s finances are limited, consider contacting your local Department of Aging Ombudsman Program for guidance. Review your parent’s benefits and insurance documents to see if they have long term care insurance, and contact the insurance company regarding the requirements to activate the policy.

2. What level of care will your parents need now and possibly in the future? Some active adult community facilities only provide limited heath care while others are connected to an assisted living facility that offers more comprehensive care so if needed, your parents can seamlessly transition. Organizations like A Place for Mom,  Adult Living Solutions, Seniors Resource Guide and possibly your local senior center can provide information on helping you make the most informed decision.

3. What level of independence do your parents want? This may require a reality check. Talk to your parents to make sure that the facility they want and the expected level of care matches. Once you have agreed, use the resources above to find the best option that matches your parents needs and wants.

Elder care can be stressful. There’s a lot you can do though. Taking the time to help your parents make the best decision will go a long way into making the transition as smooth as possible.

 

Managing Mom’s (or Dad’s) Money

September 09, 2014

I recently spoke to a caller on the Financial Helpline, where we provide over the phone financial coaching as an employee benefit through her employer.  She had just learned that her parents had deeded over the family home to her nephew, who was in his early 20s and barely getting by. Her mom had just recently settled into an assisted living facility at $5,500 a month due to an onset of dementia. Her dad, age 93, still lived at home with her sister and nephew and was getting worried he might go broke trying to pay for her care and he didn’t want to lose the family home.  Continue reading “Managing Mom’s (or Dad’s) Money”

4 Ways to Plan For Long Term Care

July 30, 2014

According to the American Association for Long-Term Care Insurance, over 70% of long-term care insurance policies are applied for after age 54. Maybe it happens after the kids leave the nest or perhaps when other goals like retirement are realized but I believe most people don’t start thinking about long-term care until they’ve experienced it through someone else.  I’ve had my share of experience dealing with long-term care but my most recent encounter with Patty Smith (name changed to protect the innocent) has made me realize why it is so important to plan for long-term care before it is too late. Continue reading “4 Ways to Plan For Long Term Care”

Are the Rich Really That Different?

November 29, 2012

At Financial Finesse, we are expanding more into financial planning for high-income executives, which is surprisingly an underserved population for unbiased financial guidance.  Many high net worth individuals have access to financial advice but not necessarily from an unbiased source. I recently had the opportunity to work with a group of senior executives with much higher incomes and account balances than the employees that we typically talk with. Now, you may expect that those in the top income tax brackets would have significantly different financial problems than the rest of us and to some extent you would be right. They’re generally able to cover their expenses so they usually aren’t struggling with debt or cash management problems. But other than that, many of their problems are the same ones typically facing other people at the same stage of life. They just have more digits in their numbers. Here are their three biggest financial issues: Continue reading “Are the Rich Really That Different?”

Choosing the Right Healthcare Power of Attorney

July 11, 2012

Choosing a person to make healthcare decisions for you when you are physically and/or mentally unable to make them for yourself is difficult, but it’s a choice that should be made with great care and diligence.  This person may be required to make decisions not only about the type of treatment you receive but also about which hospital you go to, where and what type of custodial care you receive, and when it may be time for hospice care.  You may be inclined to simply name a spouse or a child, but as my friend Joe found out, this might put them in a very difficult position.  Here is Joe’s story (and just for the record, all names have been changed to protect the privacy of those involved): Continue reading “Choosing the Right Healthcare Power of Attorney”