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Creating A Long-term Care Plan, Part 3

In this series, I address the importance of creating a long-term care plan. For more information, please visit artofthinkingsmart.com/care and claim your free spot for a long-term care seminar I will host. You also can call 524-CARE (2273).

One of the top questions I get when it comes to long-term care (LTC) is the best way to pay for it. With the average cost for a private room at $135,050 a year in a nursing home in Hawaii, you easily can burn through your hard-earned assets.

LTC can be paid for through several ways. Here are the three primary options:

1) Self-funding. The median price of nursing homes has gone up 24 percent the past five years and is expected to increase even more. Since people are living longer and often in poorer health, paying out-of-pocket for care will be expensive. You may not have much left if your goal is to pass assets to your family. Even if you want to start saving at a younger age to fund your care, it still may not be enough. Let’s say a 45-year-old starts saving to fund her care and estimates using it at age 85. Since the average length of LTC services needed for women is 3.7 years, the total cost today is $500,000. If we assume an annual increase of 5 percent, the future cost of care will be $2,734,796. If she is able to get an 8 percent annual return, she will need to save $783 a month, or approximately $9,400 a year. That amount goes up to $1,792 a month or $21,500 a year if the interest rate is 5 percent! Not many have that much money around to save or use for LTC, so this option may not be best for most people.

2) Government Funding. There are several public programs that help pay for LTC services. Medicare is a federal program, and in order to qualify, you have to be 65 or older, have certain disabilities or have permanent kidney problems. Medicare does not pay for most long-term care services, but it will help pay for a short stay in a skilled nursing facility, for hospice care or for home health care, if certain conditions are met.

Medicaid is a joint federal and state program that helps people of low income pay for some or all of their health care bills. For singles the asset limit is $2,000, and for couples it’s $121,220. You can own your own home, but the equity cannot exceed $828,000. There is also a five-year look back to make sure assets were not given away. You also have to require a certain level of medical care.

There are other government programs, such as veteran’s benefits and the Older Americans Act. Many people have too much in assets to qualify and if they drawdown their assets, a spouse may be left with little to nothing. 3) Private Pay Options. There are LTC products that you can purchase with existing assets that can help cover your costs. By doing so, you transfer the cost and risk to the insurer. There are different types of LTC products such as LTC insurance, annuities, reverse mortgages, trusts, life insurance and hybrid policies. Some of these products, however, have low liquidity and high fees. It is important to purchase the right type of product, or even combination of products that are in your best interest.

Next week I will be going more in-depth on the pros and cons of each and some helpful strategies to use.