Long-term care: Lessons from looking after a loved one
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Earlier this month, I had to place my mother in a nursing home. It was a decision that was probably past due given several recent falls, increasing confusion, lack of self care and overall physical inability, all caused by dementia.
Still, it was the hardest decision I’ve ever made in my life.
Mom, almost 82, had been living in our guest house for about two years, requiring more and more care. And despite having home healthcare workers assisting us, we were spending as much as 10 to 12 hours a day helping her with the basics of life – like toileting and getting in and out of bed and bathing, to name just a few.
Part of the reason we kept her here for so long was love and family duty, yes, but also because Mom has no long-term care insurance, no assets of significance and limited income from Social Security and her pension. In other words, she’s pretty average when it comes to today’s elderly American. In fact, nearly half of all U.S. households have no retirement assets, according to the National Institute on Retirement Security.
For my mom, that means her only options outside of her family looking after her are mediocre care in a nursing home that is understaffed at best and poorly run at worst. I couldn’t stomach the thought.
Being average, it turns out, is pretty lucky, though. I’ve had conversations with friends going through similar situations with their parents where there is significant debt to deal with or their parents’ assets, while not substantial, preclude them from receiving assistance for long-term care through Medicaid.
So basically, things could be worse, but they’re still not great. This month, we’ll pay about $6,000 out-of-pocket for Mom’s care while we wait to see what the Medicaid verdict will be. Her care has become an around-the-clock job requiring professional caregivers. She doesn’t know what day it is or where she lives most of the time, and sometimes she’s so delusional as to think the nurses want to steal her internal organs. If she doesn’t qualify for Medicaid for some reason, I’m honestly not sure what we’ll do. Paying $6,000 a month is not only unsustainable long-term, but it cuts into our ability to provide for ourselves when we’re old and infirm.
Where my mother isn’t average, however, is in her need for care. Dementia patients can spend years in nursing facilities, but, according to the Center for Retirement Research, the average man will spend less than 11 months in long-term care while women will spend around 17 months. That’s important information I’ll get back to shortly.
I don’t mention all of this to whine or to complain. These are simply facts that underscore the need for individuals to prepare when it comes to their end-of-life care. Unless you want to saddle your children or other loved ones with these difficult decisions and financial stress, you’re going to want to put in place some kind of plan. And save, save, save.
According to the AARP, the average cost of a year of care in a private, Medicare-certified nursing home is more than $95,000. It’s more than $45,000 a year to have someone come into your home for just 40 hours per week. And an assisted living facility runs nearly $50,000 a year, according to AARP’s figures. Obviously, this gets very expensive very quickly.
On top of that, government options for assistance may not even be around by the time you and I retire, or could be dramatically stripped down. Just look at the lingering headlines about an Affordable Care Act repeal, despite the recent Graham-Cassidy bill’s failure to pass.
Even today, government programs like Medicare and Medicaid are very restricted. For example, Medicare covers only a maximum of 100 days of services after a hospital stay. That includes rehabilitative care in a nursing facility and home healthcare after that. Medicaid is only available if you have very limited assets and, perhaps worst of all, decisions about the care you receive is left up to the state, not you or your family.
Now, if you’re thinking you don’t need to worry about any of this because you have employer-based health insurance, think again. It doesn’t cover daily, extended care services. Zip. Zilch. Nada.
Yes, I’m painting a very gloomy picture here. And in reality, it is kind of grim. Our healthcare system simply doesn’t provide that well for the inevitable decline humans experience once they’ve reached a certain age. But there are options. All of them, however, require that you save and start doing so sooner rather than later.
To start with, there’s long-term care insurance. There are also annuities. And of course, there’s your standard retirement accounts like IRAs, 401(k)s, etc. Choosing which vehicle is right for funding your long-term care needs can be difficult, though. I spoke with Gabe Anderson, a Certified Financial Planner and founder of Crafted Wealth Management in Venice, California, about how these products, in particular, compare.
“I often find that it’s the people who’ve had personal experience, either with a parent or grandparent either going on a long-term care claim or not having long-term care and having to pay out of their pocket, who desire to have that coverage,” Anderson said. “But it is expensive.”
And it’s only becoming moreso, Anderson continued. While buying a policy at a younger age means cheaper premiums, it also means paying them longer.
Perhaps the most difficult part of long-term care insurance is figuring out how much coverage you’ll need. You literally have to guess what the future holds.
Now, if you’re the average man as we mentioned earlier, you’ll need only enough to cover about 11 months of care. Is that in a nursing facility at today’s average rate of $95,000 a year, or will you be able to stay at home with only a little help? What will the average cost for care be in 20, 30, 40 years?
What can make sense for some people is to buy a scaled-back policy that would pay just enough benefits for a short stay in a care facility and then tap other resources should the need arise.
“It’s always important to run an analysis,” Anderson said about comparing long-term care insurance with other options. “So you’re paying $125 or $150 a month for this benefit now in your early 30s. What would happen if you put that into an investment account or a savings account? What’s the difference going to be over a 50-year timeframe when you might actually start making that claim? That can be a pretty substantial number because it’s compounding, especially over 50 years.”
Another option to consider for handling the costs of long-term care are Longevity Income Annuities, or LIAs. They’ve been around for a while, but they’ve only recently become a routine part of retirement planning. In a nutshell, they can provide guaranteed income for life.
LIAs also can be purchased later in life at, say, age 65 when you retire. You can take a portion of your retirement savings at that time and put it into an LIA, which will guarantee you an annual income from age 85 onward.
A recent National Bureau of Economic Research working paper summarized how LIAs work this way: “Even in the current low-interest-rate environment, a deferred single-life annuity purchased at age 65 for a male costing $10,000 can generate an annual benefit flow from age 85 onward of $4,830 ($3,866 for a female) per year for life.”
So, instead of purchasing long-term care insurance, you could put all your money into investments, as Anderson outlined, and then convert a portion of those savings to an LIA at retirement age. LIAs really only make sense, however, if you’re healthy and believe you’ll live another 20 years or so.
Here’s a high-level view of these two major end-of-life care options. Long-Term care insurance benefits
Helps you maintain your financial independence
Relieves your family of caregiving costs and tasks
Allows you to choose where you receive care and what type of care you receive
Insulates your assets so you can leave them to your heirs Annuity benefits
No set parameters for spending (can be for healthcare or anything else)
Can be purchased later in life if a financial shortage is feared
Guarantees income for life
Payments never change, regardless of market conditions
As with all major financial decisions, it’s a good idea to sit down with a financial professional to review your options. Your age and financial situation today, your earning potential, your life expectancy, your retirement goals and your family situation all come into play in determining your best options.
The most important thing, though, is to prepare. Have some kind of plan in place that ensures you are in control of your situation in the future and that your kids, your kid’s kids or some other loved ones aren’t struggling to make your ends meet. It’s the kindest thing you can do for your future self and for your loved ones.
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