My husband and I recently spent the weekend with my parents, siblings and their families, celebrating my mom’s 78th birthday. We had a great time together, and mom told us more than once that having everyone home to visit was her best birthday present. In today’s world, when we are all so busy, sometimes the greatest gift we can give is our time and attention.
When mom and I were in the kitchen cleaning up from dinner (Yes, it was her birthday and we still couldn’t get her to sit and let us wait on her!) she confided in me about a conversation she’d had with my 80-year-old father. Mom had been talking about things they needed to do to the house. Dad jolted her when he asked, ‘How much time do you think we have left here?’
The realization that my parents are approaching the age when they may no longer be able to live alone is unsettling to both my mother and I. They’re healthy, active people, but they can’t escape the march of time and the impact it has on their bodies.
Caring for our family as they age is a complex issue, fraught with emotions. Many people want to live in their home as long as they possibly can. Others may decide to move from their home into a retirement community, continuing care community or assisted living facility. This solves the problem of having help available when they need it, but it’s a true example of getting what you pay for – the places you would want to live can be very expensive.
When our clients share their concerns with us, one issue that comes up frequently is not wanting to be a burden to their kids. They don’t want their children to pay for their care or take time away from their jobs to care for them. Others don’t want to spend down all their savings in order to pay for their own care, leaving little behind.
Long-term care (LTC) insurance is supposed to be the solution to these concerns.
I admit I’ve been skeptical of long-term care policies since they became available in the mid-80’s, partially due to my family’s history of taking care of relatives in our homes, but mostly due to my concern that companies would not be able to keep their financial promises. Last week, Genworth disclosed that it identified a “material weakness” in its internal financial controls related to its LTC insurance business; and many companies have exited the business after losses caused by several factors.
Since the policies were first sold, few policy holders allowed them to lapse. (Lapsed policies would have provided years of premium payments with no offsetting claims, creating a buffer for potential premium increases.) Interest rates on insurance company investments fell and remained low. The risk of needing care was expected to remain around 12% for men and 40% for women, where it was in 1985. None of this worked out as planned. As a result, even companies who have remained in the business are increasing their premiums significantly, which has left many people wondering if they should ever buy a policy or pay the 20-40% increased premiums for their existing ones.
If LTC policies have not turned out to be the financial solution we thought they might be, what else can you do?
- Put a clear plan together for managing your care while you are still healthy, active, and clear about what you want. Many families are forced to make decisions when an emergency occurs. As a result, the solutions aren’t always the best financial or emotional ones for everyone involved. Take the time to think about where you live today, and how you can adjust your environment to be safe and comfortable as you age. Thinking through the financial possibilities now will save you worry and financial stress later.
- Include the possibility of long-term care expenses in your financial plan. People sometimes tell us they feel comfortable spending much more in the first 10 years of retirement because they know they won’t be spending as much on recreation their last 10 years. We tell them they’ll probably be spending the same amount, just not on fun things like travel. The cost of having someone help you with housecleaning, yard work, cooking meals, getting dressed and bathing is no different than any other expense. You have to plan for that potential cost of living. If you can no longer live at home, the median cost for an assisted living facility in Ohio today is $48,000 a year, while a nursing home is $87,000.
- If Alzheimer’s or other debilitating illnesses run in your family, consider insuring a portion of the cost of care. Buy a policy with as long a waiting period as possible – usually 90 or 100 days. Insure a portion of the expected cost vs. all of it, and consider a lower annual inflation rider. All of these changes can help reduce the cost.
Like many decisions in life, there is rarely a one-size-fits all solution. The best course is to be as prepared as you can be, and accept the fact that you may have to make adjustments along the way.