By Brian Swerdlow
Anchor Financial
If Americans gained anything positive from the last five tumultuous years, it’s the realization that they must drastically re-think their financial planning to include more savings for long-term care.
A study from financial services company Genworth concluded that rates for assisted living facilities in the United States increased by an average of 1.4% to a national median cost of over $64,000 per year, and there are no signs that these increases will stop. Experts expect the median yearly nursing home cost for a private room in 2050 to be nearly $257,000!
Meanwhile, more people than ever need these services. According to the Administration for Community Living (ACL), a government agency, someone turning 65 today has a nearly 70% chance of requiring some kind of long-term care service or support during their remaining lifetime. Women tend to need care longer (3.7 years) than men (2.2 years)
While much of such care comes from loved ones, 48% of people turning 65 will also need some form of paid long-term care during their lifetimes.
It’s reasonable to assume that most people are not prepared to absorb such costs once they retire. The lack of an LTC plan impacts many pre-retirees, especially people who were forced to retire early or who experienced other financial setbacks.
How did COVID-19 change long-term care?
Possible decreases in the number of available facilities
COVID-19 and pandemic responses contributed directly or indirectly to the deaths of thousands of nursing home residents. This catastrophic loss of life moved many Americans to say they’d prefer care in their home versus care in a skilled nursing facility. This shift in attitudes about in-home care put pressure on an already beleaguered nursing home industry, forcing some facilities to close or cut back on staff.
Increased costs for the government. As the largest payer of long-term care costs, Medicaid provides nearly half of all money spent on LTC services. About 6 in 10 nursing home residents currently receive Medicaid coverage. This number is likely to increase, and with it, more stress on the national budget.
Changes to LTC insurance. The COVID-19 pandemic is pushing older Americans in the direction of getting long-term care in their own homes instead of in nursing homes. Because of this, fewer and fewer new LTC policies cover facility-only care. Those who want or need skilled nursing facility care may find it challenging to purchase the type of LTC insurance required. Some long-term care insurers have already implemented rate increases and changed plan benefits. Rates will likely continue to increase, and underwriting criteria will become stringent. People who don’t obtain LTC standalone policies when they are younger and in good health might discover it’s nearly impossible to get a policy later in life.
Could an annuity with LTC benefits be a solution?
Several companies now offer annuities that provide LTC benefits with more straightforward, less stringent underwriting. In addition to the more relaxed underwriting requirements, purchasing a simplified issue annuity with LTC benefits has some other benefits.
You will have a fixed premium.
Traditional LTC policy premiums can and do increase. However, with a long-term care annuity, the premium does not increase.
Return of premiums.
Traditional long-term care is a “use it or lose it” proposition. As is the case with homeowner’s or auto insurance, you may never need LTC insurance, but you won’t get your premiums back if you don’t use it. Some LTC or “hybrid” annuities allow you or your heirs to recoup the principal, with interest, if you don’t use your LTC benefit.
Summing it up: Even if you cannot qualify for traditional long-term care coverage or cannot afford it, you can still get some protection. Long-term care annuities can help you offset some of nursing home care costs while offering growth opportunities, safety of principal, and tax advantages.
For more on long-term care issues, check out these other resources.
https://acl.gov/ltc/basic-needs/how-much-care-will-you-need#
https://www.medicareinanutshell.com/post/who-pays-for-assisted-living
I am always happy to help pre-retirees and retirees evaluate and assess their current portfolios and adapt them to evolving financial circumstances. If you’d like a second set of eyes to help you gain long-term financial security and peace of mind in retirement, contact me today.
https://www.anchorfinadv.com/index.html#contact or call (847) 604-0090
Find Brian on Linked In:linkedin.com/in/brian-swerdlow-141a238
Anchor Financial Advisors Website: anchorfinadv.com
