The good news is people are living longer, the bad news, according to the recently released 2012 MetLife Market survey of Nursing Home, Assisted Living, Adult Day Services and Home Care Costs, national average rates for long-term care in the U.S. continue to rise.
“Despite the downturn in the economy, looking at the past five years, the annual costs for nursing homes and assisted living have increased an average of 4% per year,” says Sandra Timmermann, Ed.,D., director of the MetLife Mature Market Institute.
The rising cost of long-term care, combined with medical inflation, which hovers around 4% annually, can derail a financial plan if these costs are not taken into account. Here's how to best prepare for rising costs.
Face the facts
“The biggest mistake people make when thinking about long-term care costs is saying to themselves, 'it will never happen to me'. Seventy percent of us over age 65 will need long-term care at some point in our lives. Planning for the possibility that you might need long-term care is essential,” says Mitch Adel, a senior partner at Cooper, Adel & Associates, which specializes in elder law. “We are all living longer, and you can be sure that long-term care costs will only continue to rise in the future, which means paying higher costs for longer.”
Choose a partner
Choose a trusted long term care planning partner who can help carve out a plan that addresses personal anxieties and concerns for yourself and your family, suggests psychologist and money coach Barbara Nusbaum. Get clear and specific on anxieties, thoughts and wishes by creating a 3-column list. In the first column list anxieties, in the second, list specific thoughts about that anxiety and in the third column, list what a wished-for scenario looks like. “The wished-for scenarios are the goals for your long term care plan,” says Nusbaum.
Investigate long term care insurance. It's not cheap, and it's not as readily available as in the past, as some companies have ceased providing the product, but it's worth a look-see. If you think a policy is right for you. Get one, either through your company if available, or privately with at least $250 a day daily benefit for at least six years, advises financial planner Jeanne Brutman. If that's not affordable, consider asking your children to pitch in to pay the premium. “This will protect all income streams, such as social security, pensions, and annuities from being taken by the government or the nursing home.” Be sure to take your federal tax deduction for your long term care premiums.
Some states offer tax credits for long term care premiums. “You can accumulate assets in Health Savings Account on a tax deferred basis that can be utilized tax free to cover long term care premiums,” points out Charles Weinrich, first vice president and private financial advisor with SunTrust Investment Services, Private Wealth Management.
You can also consider a life insurance policy with a long term care rider. Many traditional life insurance policies are now available with long term care riders that effectively allow you to accelerate the payout of the death benefit in the form of a long term living benefit if you quality, adds Weinrich.
Think beyond Medicare
Be prepared to subsidize your Medicare policy with supplemental insurance. “Accept that Medicare pays very little and will probably be paying less and less in the years to come. Having an additional prescription program or gap insurance can save thousands of out-of-pocket expenses,” says Barbara London, president of Freedom Home Healthcare, a provider of in-home care.
Get your documents in order
No matter how large or small your estate will be, estate planning is critical for smooth and efficient long term care planning. Proper planning includes – making a will, choosing a power of attorney whom you trust, choosing a health care proxy that will carry out your wishes, says London.
Don't wait. Get your estate plan in order as early as possible, when everyone involved is still healthy. “As laws change and more states look to adult children of seniors to cover unpaid nursing home bills, it makes it even more imperative to get your plan in place early and review it regularly,” says Adel.
Uncover all options
Don't overlook government programs that could help pay for long term care. The Aid & Attendance benefit sponsored by the Veterans Administration is one example. If you are a wartime veteran or a widow of one, you may be eligible for benefits of $1,000-$2,000 each month for long term care, says Adel.
Another option many people are looking into are in-law apartments, making additions to their home to take their parents in, says Ted Sarenski, president of Blue Ocean Strategic Capital. There's also a growth in interest in “granny pods”, fully equipped cottages designed to meet seniors needs.
Says Timmermann, “You have to plan for the possibility of long-term care and calculate your retirement costs with the contingency that long-term care might be needed at some time in the future.”