Peace of Mind in Uncertain Times: Part 2
By Boyd Casselman
After a lifetime of saving and investing for the retirement years, preserving your nest egg and protecting your assets are probably some of your highest priorities. Many common risks stand in the way of preserving your retirement savings.
Protecting yourself from them is an important task, but can be daunting. Understanding those risks is half the battle. Taking action is the other.
This is the second installment in a series addressing common events that jeopardize seniors’ retirement income. In last month’s issue, we addressed Risk #1: “Unnecessary Investment Risk” and Risk #2: “Outliving Your Money.” Continuing in this theme, this article features information on another common risk–health concerns.
Risk #3: Illness, Injury or Declining Health
Unexpectedly, and without warning, Bob’s wife experienced a stroke and was admitted into the hospital over the weekend. On the following Monday, he called a reputable senior planning organization to inquire about securing long-term care insurance to cover the inevitable costs. When he explained his plight, the agent respectfully informed him that since his wife had already fallen ill, the opportunity for long-term care insurance coverage had passed; Bob would have to rely on other options for paying for his wife’s custodial care needs.
Whenever I ask seniors about their greatest concerns, poor health is usually the first or second response. If you worry about declining health or serious injury, you are not alone. One of the greatest risks associated with declining health is the cost associated with custodial care arrangements or long-term care in a nursing home.
According to a study done by AARP, few people–less than 10%–expect to end up in a nursing home for a long-term stay (greater than 90 days). The reality of the situation is that over 40% of us will; therefore, many of us are in a state of denial when it comes to the issue of long-term care. For those who do end up in some type of long-term custodial care arrangement and stay for more than three months, the average stay is nearly three years! And even those who choose to stay at home rather than move into a nursing home may still be faced with the need for long-term care at home. Either way, the costs of others assisting you in the activities of daily living can be very costly: $30,000-$60,000 or more per year for a nursing home. (Activities of daily living include bathing, dressing, feeding, toileting, and transferring. It is commonly accepted that when a person is unable to do any two of the activities of daily living, they need custodial care.) For long-term care at home, the expense is less, but still costly.
A brief description of some options for managing the financial risks associated with a long-term illness or declining health follows:
1. Self Insurance: Self insurance is exactly what it implies. For those who have the financial means and inclination, saving money to pay for your own long-term care expenses is a reasonable choice.
2. Long-Term Care Insurance: Long-term care insurance policies are designed to cover all or a portion of the custodial care cost incurred at a nursing home and/or at home for those who can no longer perform some activities of daily living. Purchasing long-term care insurance is a complicated venture—there are many variables and choices. Some include: a reasonable daily benefit amount, reasonable elimination periods, reasonable benefit terms, and coverage for both a facility and home arrangement. The key here is to find someone who can guide you through the complexities of this potentially valuable insurance. A certified senior advisor can help you make right decisions about which long-term care insurance policy best fits your circumstances.
3. Combination Life Insurance, Long Term Care Insurance and/or Annuity Plans: In addition to traditional long-term care policies, other interesting options are available. Even though it typically takes a very short time to recoup the cost of your insurance premiums once you go on claim, many choose not to purchase the insurance, because they do not want to “pay into something they may never use.” One answer to this problem is to purchase a hybrid or combination insurance policy. These products typically combine life insurance, long-term care insurance, and/or annuity savings plans into one product. The beauty of this type of insurance is that, eventually, a benefit or combination of benefits will be paid out—even if it is a death benefit after you are gone. These products, while new to the industry, are worth looking into.
4. Asset Preservation Strategies: Simply put, asset preservation involves strategies that help to preserve assets for a healthy spouse while the sick spouse receives the long-term care they need. The strategies involved in asset preservation can be complex and time sensitive, so working with an expert in asset preservation is a must for this strategy.
5. Reverse Mortgages: Many people think “reverse mortgages” are dirty words. It is true that for many people, reverse mortgages are not appropriate. However, they can be a great blessing at a time when few other options are available. Whether you want to increase income, reduce expenses, or fix up a home, reverse mortgages may be a smart choice.
6. Relying on Family: Many of us have family willing to care for us long-term, if needed. However, the question is, “Is it appropriate—or even wise—to call upon a spouse or children for long-term help?” Caregiving is mentally, emotionally, and physically taxing. Many caregivers sacrifice their own health while trying to preserve the health of a loved one. In most cases, utilizing outside-of-family custodial care options are both prudent and wise. Before committing to the care of a loved one, carefully consider how that might influence the life of the caregiver and their families.
7. Doing Nothing: Finally, the last choice—and the worst choice—is not to make a choice at all. Before it’s too late, take the time to investigate what your options might be, and then put a plan in place. Remember: choose the strategy that is best for you and your familiy.
Don’t enter a state of denial about the chance of ending up long-term in a nursing home or other care facility. Doing so may play havoc on your retirement savings, as well as put undue stress and pressure on your loved ones. Increases in healthcare and medical costs are unavoidable; however, with a little planning, these costs can be contained and managed better.
So what should you do to protect yourself and you family from the likely event of long-term care expenses? The best time to address health risk is now—while you are still healthy. Before the need for long-term care manifests itself, purchasing a long-term care insurance policy or purchasing a combination insurance plan are ways to manage the risk of long-term care costs in advance of the declining health, illness or injury. After the need for long-term care shows up, purchasing a long-term care policy of any kind is not a viable option anymore. At that point, asset preservation and a reverse mortgage are two available strategies for managing the costs of that care. Asset preservation protects the assets for the healthy spouse to maintain his or her lifestyle, while reverse mortgages provide an infusion of cash to pay for long-term home custodial care. Self insuring works anytime you have sufficient assets to cover your costs. However, the decision to save and pay for one's own long term care costs should be made long before the need arises.
Remember, not all planning tools and strategies are appropriate for everyone, so finding someone who will take the time to understand your unique situation, present you with appropriate options, and help you choose a strategy that is right for you is crucial to protecting yourself from this very common and worrisome risk.
If any of the risks detailed in this series of articles are a concern to you or someone you love, do something about it! And if you don’t know what to do, find someone who is qualified to guide you through the complexities of making decisions during the retirement years. You’ll be happy you did, and you’ll experience peace of mind in the process.
The preceding article is the second in a series on “Risk” and is provided by the firm of Scarlet & Casselman – Utah’s Premier Retirement Resource. Contact them at (801) 544-5583 or toll free (877)-544-5583.