Long term care or long term concern

Doug Horn

Everything has been done right, the home will be paid off at retirement or shortly thereafter, retirement accounts will generate the income required, funds are available for children’s college or they are already finished, and insurance is in place to guard against the loss of income or the destruction of the home or car. Obviously, it is time to relax and enjoy the benefits!

Unfortunately, there is still something that may sink the perfect retirement ship. While we are living longer, the last few years are not always without significant healthcare requirements. The harsh reality is that most retirees are not prepared for a long-term illness or healthcare needs. The reason is not really important, but protecting against the risk is.

Today in our area, the cost of care can range from $3,500 to $5,500 per month, depending upon the provider and additional services provided. While you might believe you can handle this cost without insurance, consider the cost when care is required. Using the average of the above costs and an inflation rate of 3.5%, which I believe is low when considering medical care, the following table shows us what the monthly long term care (LTC) costs may be in the future.

I covered this issue in 2005 and projected future costs estimating an inflation rate of 3.5%. While inflation may have been low when considering all consumer products and services, for medical care and services the rate may be too low. In addition to taking on these costs, your spouse may still be healthy and at home, thus their expenses must be covered as well. The question becomes, “Will retirement income be able to cover these medical expenses and the living expenses of the healthy spouse without being depleted too soon?”

Once the need is acknowledged, the plan design and the provider should be considered. Long term care policies have many features each with their own cost structure. Certain features are a must have, while others are optional. The policy is also a contract, which will spell out the benefits and costs which are included. Understanding these contracts is a must in order to avoid what may appear to be a great value when looking at the premium, only later to find out there are many exceptions to coverage.

Since this is insurance, most individuals are eager to find out just when is the best time to purchase this coverage. One objective is to keep the premium as low a percentage of your retirement income as possible. One way to achieve this is to spread the cost over more years, thus purchasing coverage in your 40’s rather than your 50’s, or even in your 60’s. Even though you may be paying longer, in most cases you will not be paying more. I have tested that theory more than once.

There are only four ways to pay for this care: 1. Have sufficient resources yourself to pay as you go; 2. Get even with your children, have them pay; 3. Spend all of your money to become indigent before you become ill, and have the Government pay; or 4. Be insured and pay only part of the costs by paying the premiums.

For assistance with portfolio allocations, insurance, estate planning, or investment management contact me at Quality Financial Concepts or one of the other Certified Financial Planners in our area. To continue a personal quest for education, you can also view our learning center on our website, www.goqfc.com. There you will find articles on a variety of topics, on-line seminars, calculators, as well as a host of other free tools.

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