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THE FINANCIAL CHALLENGE OF LONG-TERM CARE
The reality today is that for those who enter their late 80's retirement may soon end--not in death but in long-term care. This has always been the reality for severely disabled persons, but only recently for the elderly. The financial system for retirement security, developed about 40 years ago, was a combination of Social Security, pensions, and individual retirement funds for the support of persons, generally over the age of 65, who are no longer working.
That works fine until about age 85, but now an astonishing number of people are living beyond that age. It's an age marked by frailty and long-term care whose costs far outstrip the retirement resources of most people. In the year 2001, for example, the AARP estimated that the average cost, each year, in a nursing home was approximately $56,000.
There are, essentially, just three ways to cope with such astronomical costs:
"Self-Finance" (pay the costs yourself). A surprising number of people can do this. The question to ask yourself is: Can the income from retirement investments be raised, so that enough can be generated to pay for long-term care? If so, then long-term care can be financed almost entirely out of income, leaving the principal (the assets of an eventual estate) intact to pass on to heirs.
To help you answer this question for yourself, see "Turn Your Investments into an Income-Producing Machine" (in Retirement Planning), or contact us for further guidance.
Buy Insurance. If you're still healthy, and you can afford to pay the insurance premiums, you can buy insurance. This could be in the form of Long-Term Care insurance, but strategies which involve the purchase of additional life insurance might also work. Insurance policies in these areas are not standardized, and, depending on the age of the insured person, can be very expensive. Contact us to discuss a possible insurance analysis.
Medicaid. This is the government's primary source of assistance for long-term care, since Medicare pays only a small fraction of such expenses. The problem for most applicants for Medicaid is that it is, essentially, a welfare program, saddled with complex regulations and slow-moving bureaucracies. It's for people who: 1) Don't have enough investments to "self-finance" the costs of long-term care; 2) can't afford or didn't buy long-term care insurance early enough; and 3) require long-term care right away.
However, in appropriate situations it is very advantageous to plan for Medicaid, particularly when there is a spouse whose assets we want to protect. Contact us to discuss various Medicaid planning strategies. Also see "Medicaid Myths". |
