At What Age Should I Obtain Long Term Care Insurance?
Preparing financially for retirement can be riddled with uncertainty and worry. If you think about it, there are literally an unlimited number of variables and “what if” scenarios to factor into your plans.
One of the largest financial concerns for many is the unknown, but potentially devastating cost of long term care. The financial impact of an extended need for long term care can be enormous.
Consider the following:
It is estimated that 70% of people over the age of 65 will need long term care services at some point in their lifetime.
At current rates, a three year stay in a skilled nursing facility could exceed $250,000. In 15 years, this cost could balloon to more than $480,000.
Over the last five years, the cost of assisted living and skilled nursing has increased by about 4.5% annually nationwide.
How should I plan financially for long term care?
In our office, when planning for the cost of long term care, we consider two basic alternatives—paying out of pocket and obtaining long term care insurance.
How do I know if I can afford to pay out-of-pocket (or self-insure) for long term care?
Unless you are Warren Buffet or Bill Gates, this is a difficult question to answer definitively. However, it is possible to calculate the approximate cumulative cost of care over a period of time and then simulate (through a Retirement Feasibility Analysis) if your assets will cover these costs. In addition, those who have stable and adequate pension income may be able to pay out-of-pocket for long term care.
Are there any “sure signs” that would warrant the need to obtain long term care insurance?
When it comes to retirement planning, every person’s situation is different. However, we do believe that people should at least consider obtaining long term care insurance under any of the following circumstances:
Your current retirement assets cannot support (at least 3 years) or you do not want your retirement assets to be depleted in the event you have an extended need for long term care.
The majority of your retirement assets are held in qualified retirement plans (IRAs, 401k plans, etc.). The tax cost associated with taking large disbursements from qualified plans could be significant—quickly depleting these accounts.
You do not want to depend on your spouse or children to provide you with custodial care.
At what age should we purchase long term care insurance?
When clients ask this questions, our “joking” response is usually “a few months prior to you needing long term care.” Long Term Care Insurance can be purchased at any age, but every year a person waits to get the coverage, the price increases. So what is the right age to think about purchasing coverage?
In general, the current trend is to buy long term care insurance when a person is in their mid to late 50s. While the right age depends on a person’s own health and individual circumstances, for most, we would like to see insurance purchased prior to age 65. The earlier you purchase the insurance, the lower the premium cost.
Risks that Could make LTC Premiums increase
A person with a negative health rating may find it difficult to obtain insurance coverage. Even if they are eligible for coverage, the more health problems a person has, the more expensive their policy may be. Ideally, the best time to purchase a long-term care policy is a few months before a health decline. Since it is impossible to predict health changes, there is a benefit to planning early.
Also, if there are other family members who have needed Long Term Care or have been diagnosed with certain health issues, you may want to consider obtaining insurance sooner rather than waiting.
Long term care can play a pivotal role in a retirement feasibility analysis. Each person needs to analyze whether long term care insurance will increase the odds of a successful retirement. If you have questions about long-term care insurance and how it fits in your overall financial plan, please contact us.
Chip Hymiller, AIF®, CFP® is a principal and founder of Beacon Financial Strategies. Outside the office, he enjoys spending time with his family in the mountains and playing golf.
