Smart Avoidance Of Long-Term Care Mistakes

Most people envision themselves living a long life, investing and planning throughout their working years to create a financially secure future where they can enjoy spending time doing the things they enjoy most.

Americans have not seriously considered or planned for the emotional and financial consequences of aging.

Many are not even familiar with the care options available and most, when the time comes, will be shocked by the associated costs. 

 The reality is, the longer you live the greater likelihood that you may require long-term care.  If you have ever been in a care-giving situation, you understand the physical and emotional toll it can take. 

While providing care to a loved one is an act of compassion, placing these burdens on spouses, children, and other family members can create a significant emotional and physical strain, and is something many people would like to avoid.

While a frank and informed discussion about present and future medical and personal needs can secure the most suitable type of long-term care at the right time, many people find the topic discomforting.

Others are in outright denial about the possibility of requiring long-term care.

Projections from the U.S. Census Bureau indicate a rapid and extensive increase in the elderly population. In 2030, when all the baby boomers will be 65 and older, nearly one in five U.S. residents is expected to be 65 and older.

This age group is projected to increase to 88.5 million in 2050, more than doubling the number in 2008 (38.7 million). Similarly, the 85 and older population is expected to more than triple, from 5.4 million to 19 million between 2008 and 2050.

The number of people 85 years or older, nearly half of whom need assistance with everyday activities, will grow even faster.

Some people fail to plan simply because of misinformation or lack of information. However, most do not realize that they are actually self-insuring their risk of paying for care. 

Whether people overestimate their ability to pay for care over an extended period, or convince themselves that they’ll never need care, the risk of needing and paying for care remains.

Many people find it hard to envision themselves needing hands-on assistance with basic living activities like bathing, getting dressed and eating.  So they avoid thinking about it altogether.  The fact is 70% of people who reach 65 will require long-term care services at some point in their lives.

Fear of aging and its associated problems are clearly obstacles to planning for long-term care. Unfortunately, fear often leads to denial, and denial prevents people from aptly assessing their long-term care needs and taking the appropriate action to address those needs.

Many believe that Medicare, Medicaid, or their health insurance will pay for long-term care. Medicare pays for LTC services only for short period, and only if the care is required following hospitalization. State Medicaid programs pay only for the financially needy and only when other qualifying criteria are met. Traditional health and medical expense insurance does not cover long-term care at all.

Long-term care involves a variety of services that include medical and nonmedical care for people who have chronic illnesses, disabilities, or severe cognitive impairments that keep them from living independently.

Long-term care helps meet both health and personal needs. Most long-term care provides assistance with support services—for example, the activities of daily living, like eating, dressing, and bathing. This type of care is provided at home, in the community, and in assisted living environments. Long-term care can also take the form of skilled care in nursing homes.

Long-term care recipients may be of any age. It is impossible to predict.  Some may need a few months of care.  Others may need a few years.  Others, such as those with dementia or Alzheimers’s disease, might require 24 hours care for as long as 10 years.  Conditions that may lead to the need for long-term care include disability, mental decline or illness, AIDS, stroke, and simple frailty. The need for long-term care is primarily measured by assessing limitations in performing or managing tasks of daily living, including self-care and household tasks.

States have always relied on a simple approach to Medicaid cost recovery: shift a portion of the financial responsibility to another payor. Traditionally the “other payor” has been the Medicaid recipient, via Medicaid’s financial eligibility rules. These rules require recipients to exhaust virtually all personal income and assets (or assign them to the state) in return for Medicaid payment of long-term care needs. Only a nominal amount of about $2,000 or $3,000 in assets may be retained by a Medicaid recipient. In addition, amounts Medicaid pays may be recovered at the Medicaid beneficiary’s death through the process of estate recovery.

Medicare and Long-Term Care

Many people believe that Medicare covers long-term care services. This is not the case. Medicare was never intended nor was it designed to support long-term care.

As wide-spread and encompassing as the program may be, however, Medicare does not contain a comprehensive long-term care component. It does not pay for ongoing assisted living or custodial care costs, which constitute the most common of long-term care services and needs. It does cover the cost of short-term services—physical and other therapies, for example—contracted through a home health care agency provided to the resident at home or at an assisted living facility. With regard to nursing home care, Medicare covers only those skilled nursing facility services rendered to help a patient recover from an acute illness or injury. Payment for skilled nursing care by Medicare requires that the patient must have first been hospitalized.

Eligibility for Medicare Skilled Nursing Care

Nursing facility coverage under Medicare is very limited. If certain conditions are met, Medicare will fully cover the first 20 days of care in a skilled nursing facility (SNF) during each benefit period. (A Medicare benefit period starts when an individual enters the hospital and ends when there has been a break of at least 60 consecutive days since inpatient hospital or SNF care was provided.)

For days 21 through 100 of each benefit period, the patient must share, or co-pay, the cost of SNF care by paying a daily coinsurance rate, which changes yearly. (In 2009, the coinsurance payment was $133.50 per day for each benefit period). After 100 days, all costs for each day in an SNF are borne by the patient.

LTC Costs by Level of Care and Facility Type

The following are indicative of costs associated with various levels and types of long-term care services as of 2009, Nationally. These are average median rates; actual costs vary dramatically by state and by geographic location within each state.

Homemaker Services

Noncertified but licensed provider rate—Nationally, the average hourly rate charged by a non-Medicare-certified but licensed agency for homemaker services is $17.48.

Home Health Aide Services

Noncertified but licensed provider rate—Nationally, the average hourly rate charged by a non-Medicare-certified but licensed agency for home health aide services is $18.50.

Certified and licensed provider rate—Nationally, the average hourly rate charged by a Medicare-certified and licensed agency for home health aide services is $46.22.

Adult Day Health Care

The national average daily rate charged by adult day health care providers is $53.59.

Assisted Living Facility

Nationally, the average monthly rate for a private one-bedroom unit in an assisted living facility is $2,825 (implying an average annual cost of $33,900).

Nursing Homes

Nationally, the average daily rate for a semi-private room in a nursing home is $183.25 (implying an annual rate of $66,886).

Nationally, the average daily rate for a private room in a nursing home is $203.31 (implying an annual rate of $74,208).

Currently, the average stay in a nursing home is about two and one-half years. Women live longer than men.  As a result, they are more likely to reach an age where they will be without their spouse and/or require long-term care.  Over two-thirds (67.5%) of long term care costs are paid for women.

Annuities may be a appropriate vehicle to fund long term care for a number of reasons.  Annuities are designed to accumulate a sum of money for a future point and then distribute those funds systematically over the life of the annuitant. 

Alternatively, an annuity can be used to convert a single sum of money into a series of periodic income payments, which will be paid as long as the annuitant wishes.  Thus an annuity can be used to fund long term care in two ways.

1.  To grow and accumulate funds for a future point-i.e. when long term care is needed.

2.  To distribute funds systematically for as long as the annuitant wants to help cover the cost of long term care. 

Late life financial planning typically focuses less on the accumulation of assets than on the proper distribution and use of existing assets to meet the retiree’s needs.  The annuity is the only vehicle that can be used to accumulate funds on a tax-deferred basis systemically distribute income, and guarantees that the income payments will be made as long as you wish.

Guaranteed, systematic, annuity payments, which are tax-advantaged, may provide an option for those seeking to cover either their long term care costs or their long term care premiums should they decide to transfer the risk to an insurance company.

Annuities Vs the Ostrich Option

For the most part, retirement is to be the time when people can leave the hassle of work and spend time doing the things they have always wanted to do, but lacked the time. However, there is no doubt that nearly everyone is taking a hit from the global financial crisis.

Companies are reducing costs and headcounts at varying degrees and job hunters are becoming increasingly desperate for work.  But every cloud has a silver lining, as they say, and this downturn is no exception.

It’s difficult to have honest and direct communication about money if you don’t know how much you will have when it comes time to retire. Baby boomers with long life expectancies who always planned to retire at 65 may now be ready to face the fact that 20 to 30 years without a paycheck is a tough thing to plan for. Realism in retirement planning is au courant in today’s world. 

Life expectancy (or life expectancy rate) is a statistically based average of the number of years a person is expected to live. Statisticians can measure life expectancy at birth or during a person’s life. 

If you’re a woman and retire at the age of 65, then you need to plan to be living the life of a retired lady for, on average, nearly 22 years – possibly as long as your time in the workforce, or time spent rearing children. For a man, life expectancy is closer to 19 years at age 65.

Now that the dust is settling after two of the most turbulent years in financial history, it’s time to sit down and regroup. The financial crisis and its aftermath have altered the landscape permanently.

Our old tried and true friend the “stock market” even before the Lost Decade of the 2000’s – just isn’t the wealth creator we hoped for and have always heard it is.

Many people have been affected by the crisis in varying degrees, and their awareness of it is a function of both how hard they were hit and how willing they are to face the new reality. Some are still reeling from job losses or home foreclosures, while others have been mercifully spared. Some aren’t sure they will ever recover, while others remain blissfully ignorant of the devastation that’s been going on around them.

It’s called the ostrich option. The ostrich is the largest bird in the world and is famous for sticking its head in the sand during times of stress. Sticking your head in the sand is definitely an option — if you want to be scratching around for financial scraps when you retire. Like the blind men describing the elephant, each has a different perception of the crisis.

The Great Recession has led Americans to downsize their expectations about their retirement and their children’s future. This void exists because people predominantly envision their money in two basic worlds; neither of which leads to growth or provide true financial security. First, they put their cash reserves in the bank, and then leapfrog to that “other known quantity,” the stock market.

They have developed a new frugality in their spending and borrowing habits and a concern that it could take several years, at a minimum, for their house values and family finances to recover.

Now is a good time to take your head out of the sand. After the devastation in the financial markets over the last two years, many folks have been searching for a safer investment.  A newer financial product, an annuity with a guaranteed lifetime income rider, is becoming more popular with retired folks or those nearing retirement that are concerned about keeping their income up, regardless of what’s happening in the markets.

Here is an example of how this type of annuity works: If you put $50,000 into it the annuity, it grows to $75,000 and you’re ready to start withdrawing, you can take 5-percent a year of that $75,000.

Then, even if the value drops down to, $60,000 or $55,000, for example, you are still taking five percent of that higher amount, which is why it is called a guaranteed lifetime income rider.

Annuities with the benefit riders that allow you to guarantee the income and be able to control the principal and still pass that on to your heirs without giving up control, should get a second look. 

A Guaranteed Lifetime Income is a humane and sensible system as the living need money more than the dead do. An annuity will help formulating your economic recovery plan and whether it will consist of a complete overhaul or a reaffirmation that everything’s OK.

One of the problems with pension funds is that nobody actually needs some big multi-million-dollar nest egg at age 65. What they need, instead, is a healthy income in retirement. But converting a nest egg into an income is non-trivial. You want to maximize your income by spending principal as well as interest, but you also want to make sure you don’t run out of money if you live a long time.

Annuities solve that problem, but they do suffer from adverse selection: “People who buy them live longer than people who don’t.”

When we “save up for retirement”, we’re combining two things: the savings, on the one hand, and our retirement income, on the other. If we die before we retire, then our retirement income is zero, but the savings are still there, and the retiree likely to benefit is our spouse, if we have one.

Annuities can play a useful part in retirement planning for some. Those looking for a guaranteed income, for example, might use these products to form their base income and use savings with less predictable returns as an add-on.

Equity annuities are a type of annuity product that are linked to a financial index, such as the S&P 500. When you invest in this type of annuity, the returns will depend on the performance of the index. However, most of these annuities also come with a minimum amount of return.

Like other annuities, an equity indexed product allows an individual to buy a form of insurance that can be converted into income at a later date. This is usually used to provide money in retirement. This option is often described as a “best of both worlds” solution that brings both fixed and variable payment components to the table. This may give a better return than a fixed annuity without the risks of a variable option.

Equity indexed annuities will pay a guaranteed minimum when they mature like a fixed product. But, they may also give an income boost as they incorporate a variable element linked to a stock market index. If this performs well then an annuity may pay out more than the fixed minimum. If performance is low, then the guarantee gives some security.

Annuities – Women’s Quality of Life

With the first wave of America’s 77 million baby boomers turning 64 this year, and according to US Census projections, by 2030, one in five Americans will be a senior citizen.   It becomes more critical for both men and women to seriously evaluate the lifestyles they would like to maintain as we live well into our 80’s, 90’s and beyond. 

Many Americans — especially women — are tormented by the notion that they will outlive their money.

 Quality of Life. A phrase heard often in recent years. Would your quality of life change if you were to need long-term care?

The issue of long term care has been in the forefront of the media and consumers lives for some time now.   While we know that nearly 50% of all Americans will need long term care at some point in their lives, research shows that the long term care dilemma affects women in particular.

People who have saved for a lifetime do not want to see their assets wiped out by nursing home costs — threatening the economic welfare of a spouse or preventing them from leaving a legacy to their children.

Have you ever visited a nursing home? Who are the nursing home residents, by and large? If your experience reflects the published reports, you found that the nursing home population consists primarily of elderly women – single, elderly women.

Why is long-term care a woman’s issue?  Two words; longevity and caregiving. In a nutshell, long term care is a women’s problem.

Long-term care covers a broad spectrum of products and services, including home health care, hospice care, medical equipment, and home-delivered meals.  The average cost of nursing home care by state across the country in 1997 ranges from $40,000 to $80,000 a year. That’s between $100 – $200 per day! 

Women live longer than men.  More than two-thirds of Americans age 85 or older are women. Eight out of 10 centenarians are women. Women have higher rates of disability and chronic health problems.  Thus, women are far more likely to need long-term care.  And, as you’ll see from some of the facts and statistics below, women clearly will need long-term care.  Many (far too many) are impoverished as a result.

Women are more likely to be caregivers.  When their husbands need long-term care, wives are there.  Women who are married, tend to outlive their husbands. Unfortunately, because many women are widowed, there is no one there to provide their long-term care?  Statistics show that 75 percent of unpaid caretakers in America are women, and when a spouse is unavailable, the caretaker tends to be a daughter or daughter-in-law. 

Women spend 50 percent more time giving care than men do. In addition, these women are likely to be middle aged and employed, requiring them to juggle their own family responsibilities with the added demand of caretaking.

The stress of caretaking may affect a female caregiver’s health, making them more likely to suffer from exhaustion, anger, anxiety, depression, reduced immunity, increased substance abuse and poor physical health.

Women also are more likely to need care than men.  At age 75, 74 percent of men are still married, while only 38 percent of 75 year old women have a spouse.  The difference in marital status is very important.  Because women are much more likely to live alone, they have no one in their household to help with daily activities.  Nearly half (48%) of women age 75 or older are living alone, compared to less than one quarter (22%) of men.

Facts also show that women live about five years longer than men and have a 10 times greater chance of reaching age 85, which explains why women represent 75 percent of residents of assisted living communities and 80 percent of nursing home residents.

There are also financial consequences being a woman.  The average caregiver will lose an estimated $240,000 dollars in lifetime earnings, as well as passing up Social Security and pension benefits due to their missing work, passing up promotions, or sacrificing their job altogether to provide care for another. On average, older women will earn only 75 percent of the income a man may earn, and only 50 percent of what a couple would make. 

Unfortunately, too many people believe that Medicare or private health insurance will cover the costs of long term care.  Often people do not realize that Medicare covers only short-term nursing home care in a Medicare-certified nursing facility.

The only type of care Medicare will pay for is “skilled” level of care (ongoing nursing or therapy care), even though most residents in a nursing home need only custodial level of care (periodic assistance with routine activities, such as bathing and dressing). Even when skilled care is needed, Medicare benefits go only to those people who have been hospitalized for 3 days prior to admission into the nursing home. After that, you’re on your own.

And Medicaid, originally intended for the destitute elderly, is a means-tested welfare program for the very poor, which requires that you spend or give away all of your assets before you qualify for benefits. Artificially depleting assets to qualify, by hiding money in exempt assets, transferring assets to children or other relatives, or, in extreme cases, getting a divorce, doesn’t work either. Medicaid no longer turns a blind eye to many questionable asset-shuffling schemes.

If you are wealthy, you will have enough money to purchase the private care you need. But the vast majority, regular middle-class America, is severely underinsured—which is a nice way of saying that we are all heading for big trouble.

In fact, neither solution covers these costs, which leaves self-insuring the only option – until funds run out.  At that point, Medicaid takes over, but most state programs offer few choices for care. 

Adult children who may be concerned with footing their parents long term care bill may want to consider purchasing and being beneficiaries of an annuity with a long term care rider to minimize the financial risk they may face.

The solution may be to plan for long term care expenses by insuring the risk of providing funds.  For example, today’s annuities have riders that allow the policyholder to tap the guaranteed benefit amount in order to pay for qualifying long term care expenses.  The coverage available on these types of riders many not be a comprehensive as that of a standalone Long Term Care Policy, but the advantage of these plans is that any unused portion of the annuity contract value will be paid to a beneficiary, eliminating the risk of leaving money on the table.

Early indications are that many consumers are intrigued by the concept of an insurance vehicle that can provide protection against the risk of long term care, but that can also provide cash values even in the event that no LTC services are ever needed. This overcomes one of the major consumer concerns about stand-alone LTC insurance—the fear of a “use it or lose it” proposition.

Unique product design. The benefit payout structure under these plans is typically defined as an accelerated benefit, whereby LTC benefit payments are made from the annuity account value while waiving surrender charges. This is usually combined with some form of tail benefit payable monthly after account values are depleted (usually as a percent of annuity account value at the time of initial claim).

Example: 1/24 of the lifetime LTC benefit limit may be payable for 24 or more months from the account value, with a 12, 24, or 48 month extension of benefit “tail” as selected by the client. This creates the opportunity to convert what would have been partially taxable account values from the annuity into tax-free payouts (LTC benefits) equaling 150%-300% of account value.

Annuity – Storm Aftermath Fix

They call America the land of opportunity.  However, unless you’ve been living under a rock, you know that we are in the worst recession since perhaps the Great Depression.

Unemployment is spiraling out of control, those homes that were so easy to buy just a few years ago are being foreclosed, and it’s harder than has been in years to get credit. 

Across the country, what we’re seeing is the aftermath of a storm. 

The storm was the recession.  There is very difficult time in the markets and economies now, and the future retirees feel very unsafe.

The downturn in the economy hurt most people’s investments, leaving them with too little for their retirement.  Given current life expectancies, many people will spend nearly one-third of their lifetime in retirement. 

Couple this with the potential healthcare costs associated with aging and it is easy to understand why planning ahead and understanding how you’ll recreate a paycheck during retirement are so important.

The baby-boomer generation now reaching retirement is probably the first generation where both partners have worked for most of their lives.  There is a battle of the sexes playing out in the complex world of retirement planning — and all too often, women come out on the losing end. Millions of women are going to lose their standard of living unless they take hold of the situation.

A recent survey by financial-services company MassMutual found that women’s retirement accounts were, on average, just two-thirds the size of men’s. The disparity is made worse by demographics: Because they live longer, women need more money than men for a comfortable retirement, according to the Employee Benefit Research Institute.

Don’t be passive with your retirement. Now that pensions are on the endangered species list, your financial future lies increasingly in your own hands.  The 401(k) plan has replaced most vanished pensions.  Take time to evaluate your needs and construct the best retirement plan for your future nest egg.

Maybe you know someone, a friend or family member, who was forced back to work after retirement by the recent economic collapse? It’s unfortunate, but it can happen to anyone.  When an individual client’s retirement date arrives, then a way needs to be found to convert the accumulated value of the savings (the pension fund) into a regular income for the remainder of the client’s life.

One great way to insure that you get the most from your retirement plan is called a retirement annuity. This can be done through a pension annuity. Simply, the savings in the pension fund are used to purchase an annuity.

A retirement annuity is like an insurance policy in that you pay in to it for a set period of time at a set amount, and upon the occurrence of a predetermined event (in this case, your retirement age) the annuity becomes annuitized and you stop paying your premium.

The policy then begins to pay you, and based on a variety of factors can be either the backbone of your retirement plan, or a supplement to your retirement pension, 401(k), social security and any other income streams you had planned for your retirement.

Annuities are a good type of investment for individuals who value safety above everything else. With annuities, an investor can count on receiving something every month during their retirement years.  An annuity can give a guaranteed income that may be useful to seniors.

There are various advantages to annuity investment. These products can, for example, give the following benefits:

• Income guarantees: Annuities can give a guaranteed income. A fixed annuity, for example, will give a secure income for the contracted period.
• Payment flexibility: Annuities can be purchased with a lump sum payment, regular payments or periodic payments. This allows individuals to use them at various life stages. Some will buy early in life; others will buy just before retirement.
• Annual contributions: There are no pre-set annual contribution limits for annuities.
• Payout flexibility: An annuity can be set up to make a one-off payment or regular payments (i.e. monthly or annually) for a number of years or for life.
• Tax status: Any profit made on an annuity will be tax-deferred until it is paid out. In some cases tax will only be applied to interest earned and not to the principal investment.
• Death benefits: If the investor dies before the annuity pays out then their next of kin will usually receive at least what they have paid in. In some cases, if they have a pre-determined payment schedule, they may also receive the income.

For many, the primary advantage to using annuities is the fact that they can be used for guaranteed income that does not have to be dependent on stock market returns.