LONG TERM CARE PLANNING IS A KEY COMPONENT OF YOUR RETIREMENT
Long Term Care needs can derail your retirement plan faster than any other cost factor. Most people saving for retirement use "qualified" accounts like IRAs, 401k, 403b. Each of these accounts force you to pay taxes on 100% of withdrawals - plus, you are forced to take money out at age 70 1/2 even if you don't need that income so can deplete an account you thought you might use later.
If you are a couple, at age 65, you have a 70% chance that one of you will need long-term at some point in your lifetime. If that happens prior to age 59 and you use money from a qualified account you have to pay not only the income tax on withdrawals but possibly the 10% penalty as well. Plus, making withdrawals from qualified accounts means you deplete the money needed for "lifestyle" later. Yes, you have some offset for the medical cost since you can write-off medical costs if they equal 10% of your Adjusted Gross Income (AGI) but, in my experience, depleting a qualified account early can wreack havoc on a family and often leaves a surviving spouse penniless.
Having a "cash account" to draw from is one great solution. If you haven't been able to save enough non-qualified cash, you can purchase a "pot-of-money" Long-Term Care policy. Other options might be life insurance or annuity accounts that add a rider for long-term care. Some riders offer to double the amount of monthly income for up to 5 years if you are taking income. You can add an LTC rider to life insurance or simply design the plan for cash accumulation and withdraw money tax-free for lifestyle and/or long-term care costs. All of these options buy you time to make other tough decisions.
I tell my clients when planning for long-term care that any solution they choose is an immediate "stay-out-of-the-nursing-home" card and just the first step in a process that may include moving to Assisted Living, selling the family home/downsizing, moving in with a child or other relative, doing a reverse mortgage or liquidating other assets.
Nobody knows who or when long-term care may be needed. 40% of people in Nursing Homes today are under the age of 65. According to Genworth's 2014 Cost Report the average cost of Assisted Living is now about $3500 per month or $42,000 per year. If you need ongoing medical care, a semi-private room in a Nursing Home averages $212.00 per day or $77,380 per year. A private room runs about $240 per day or $87,600 per year. I recently helped a client whose dad moved from memory-care room costing $5600 per month to a lock-down facility for Alzheimer's care and the bill jumped to $9700 per month. And this was not in a Metro area where costs can be even higher. The annual cost is growing by about 5.6% so a 2-year stay costing about $150,000 now will likely be over $300,000 in just 10 years.
At least once a month my mom hears a story (from me or others) about someone who can no longer take care of themselves and says, "if that happens to me, just put me in a home." This is "old thinking." She refuses to accept the fact that she cannot afford to go to "a home." She is a typical elder female with several chronic conditions; Atrial Fibrillation, Pacemaker, Crippling Arthritis with several joint replacements and more to come, High Blood Pressure, Hearing Loss, Macular Degeneration with limited vision and long-honed stubbornness. None of these is going to kill her any time soon - just cause discomfort and disability. I am in the process of removing every asset she still has from her name to prepare her for the eventuality of needing some type of state assistance. Every state has different limits and program limits and coordinate with "Medicaid" which is a Federal Program. Work with a knowledgeable Long-Term Care expert who can help guide you to the resources you need and explain the various types of programs available.
PLANNING EARLY IS THE KEY. Having a talk with your parents before something happens is just the beginning. If you are 45 or older, NOW it is the perfect time for YOU to look into Long-Term Care Planning. DON'T WAIT until something happens - just do it now.
