Long Term Care Financing Options Narrowing – Solution: Creativity

It is a cruel paradox:  As the cost of long term care rises and the number of people needing it grows, traditional options for paying for these support services are narrowing.

The statistics are clear.  We know that 70% of people over the age of 65 will need long-term care (LTC) services at some point in their lives.  The real question is how to pay for those services.  A recent RAND Corp. study found that 15 percent of those over age 70 have dementia.  Long-term care costs are now over $200 billion annually. Costs for caring for dementia patients are projected to reach over a trillion dollars annually by 2030.

Forbes outlined the problem recently in an article entitled “Costs of Long-term Care Rise While Payment Options Narrow.”

The traditional methods for payment of long-term care expenses have been long-term care insurance, personal financial resources, reverse mortgages, and Medicaid.  Long-term care insurers are declining, the premium cost is increasing, the benefits are being reduced, and there are shorter benefit periods.    Medicaid, the insurer of last resort in many cases, faces significant challenges from Congress and state legislators.

Personal net worth is not keeping up with the increasing costs of medical care.  The Census Bureau indicates that the median net worth of households 65 in 2011 was $170,000 while the cost of medical care for a couple 65 years of age over their lifetime could be $200,000.  Couples over 65 should put aside an average of at least $60,000 to pay long-term care needs.

Reverse mortgages have their own set of problems.  For example, many such mortgages are due and payable when the homeowner dies or leaves their home for an extended period of time (for example when they leave for a residential care facility).  Additionally, loan standards are tightening, upfront fees are increasing and the amounts of money available from the proceeds of such loans are shrinking.

Do not despair, however.  Creativity in planning is the answer to long-term care financial needs.  For example, life-insurance may provide not only peace of mind for your heirs on your death but a tool to finance to your long-term care needs during your lifetime. Your estate planning team should be able to work on the problem with you.  In addition to your financial advisor, and your insurance advisor, you need an attorney experienced in the issues of long-term care who can help you coordinate all of the alternative methods to finance your long term care.  Clearly, planning for your potential long-term care should be done early and carefully.  Crisis planning only limits your options and creativity.

Reference:  Forbes – (July 17, 2013)“Costs of Long-term Care Rise While Payment Options Narrow.”