Planning for Long Term Care - An Integral Part of Overall Retirement Planning

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Everyone is concerned about preparing for retirement. You contribute to your company’s retirement plan, expect income from Social Security, and hope to have enough income to supplement Medicare for medical expenses. But what if you need help with the cost of everyday activities due to an accident, illness or the effects of ageing?


Private medical insurance plans generally do not cover the costs of custodial care i.e., assistance with eating, help needed to dress, or other aid required due to loss of cognitive function. Many people are forced to drain their retirement accounts and/ or sell other assets to pay for these uncovered expenses.  That said, with proper retirement planning, these assets do not need to be depleted to pay for custodial care.


Cost of Care
The range of expenses that need to be funded varies from a low of $46,332  (average cost of home health aide providing at-home services) to a high of $92,378  (average cost of custodial care in a skilled nursing facility).  These expenses are substantial and can double depending on geographic location.


How to Pay for Custodial Care


Many people are under the false impression that Medicare will pay for these expenses. A second funding option people consider is Medicaid, but you must deplete your personal assets to qualify financially for Medicaid.  A third option is to pay these expenses out of pocket from retirement savings and other personal assets; however, too often one does not actually invest the money they spend on premiums or their investment return does not keep pace with health care inflation, which has significantly outpaced general inflation for years. A financially sound alternative is to pre-fund these expenses during your working years with Long-term Care Insurance (LTCI) – an insurance policy that will provide the funds needed to pay for home care or professional care in a facility. Additionally, should an earlier-than-anticipated need arise, an LTCI policy pays benefits immediately; whereas, it takes many years to amass comparable savings from investment earnings.


Pre-Funding the Risk


LTCI policy benefits, plan designs and pricing have experienced many changes over the last several years.  There are still traditional policies that provide a monthly benefit payment. However, there is a new solution in the marketplace called a “hybrid” life insurance policy.  These policies allow you to access the death benefit to pay for care while you are still living. Whatever portion of the death benefit that you don’t use is still available to be paid at death.  The best time to purchase coverage and start pre-funding the risk is in your mid-forties and fifties, as premium rates are age based. The earlier you start the more affordable is the annual cost.


Common Objections


1.    Long-term Care policies are too expensive.  
A long-term care policy is only part of the total solution. Insuring the greatest potential risk can be costly, so coverage is designed to provide a benefit tailored to each individual’s needs and personal financial situation.  The premium to insure the risk is more affordable than the self-funding the cost of care.  

2.    What if I never need long-term care?
Roughly 70% of Americans age 65 and older will require long-term care services at some point in their life, according to the U.S. Department of Health & Human Services.  The average length of care is 3 years in a facility with several years of home care having been provided prior to that.  

Although the chances are high you will need care, there are options available with long-term care policies to mitigate the risk of lost premium.  These include a return of premium option, the ability to share the benefit with a spouse, and life insurance policies that pay up to the face amount in long-term care expenses, a death benefit, or a combination of both.

3.    I will never go to a nursing home.  My family will take care of me.
No one likes the thought of care in a nursing home facility; however, the reality is it is often necessary when there is no other option available for custodial care.  Long-term care insurance gives you the flexibility to extend care at home without relying on family members to rearrange their lives to provide care.  Even if family is willing to care for you, they may not be able to provide the level of care you require because they lack proximity, sufficient time, technical expertise, or adequate health or strength of their own.

Many higher education institutions recognized the need to plan years ago and implemented group long-term care programs for their employees.  However, these programs no longer accept new participants, resulting in an inequity of benefits across the workforce.  Marsh & McLennan Agency can assist in reviewing your current program and determine the best solution for your employees to plan for this important component of retirement.


For more information, please contact John Mancuso or Laura McKiernan at:


John P. Mancuso, Sr. Vice President             Laura J. McKiernan, Senior Consultant
Executive Compensation & Benefits               (781) 467-4064        
Marsh & McLennan Agency                           Laura.Mckiernan@MarshMMA.com
101 Huntington Avenue, Suite 401
Boston, MA 02199
(617) 587-2339
John.Mancuso@MarshMMA.com