|Guest blog content provided to Raffa Financial Services by Jeff Merwin at Capitol Metro Financial Services, Inc.|
You may have noticed that we’re all living longer than ever before. By 2030, people age 66-84 will comprise 20% of the total U.S. population. At age 65, a baby boomer can expect to live another 20 years. And as we age, it’s possible that we may become frail and need some kind of extended care over a period of years.
Things to consider
At same point in the aging process, we may face physical and cognitive roadblocks to our independence, generating several questions:
- Who would take care of you if you were to need care over a period of years? A spouse? An adult child?
- Would you (or they) even want to enter into that kind of relationship?
- Would care be received at home or in a place like an assisted living facility?
Asking these kinds of questions far in advance helps avoid the crisis management many face at a time of great stress. At this juncture, families experience significant consequences, which are typically 3-fold:
Emotionally, there is a big difference between providing care and supervising care. The nature of the relationship between care provider and care recipient changes dramatically, becoming a significant drain on the caregiver’s mental health.
Physically, some family members are simply not capable of caring for an aging loved one. The stress on a family caregiver builds over time and contributes to his or her own slow decline. As the saying goes, caring for chronically ill people makes healthy caregivers chronically ill.
Financially, most retirement portfolios can’t pay for BOTH extended health care AND a retirement income at the same time, which often results in the invasion of principal and compromises the financial viability of the healthy spouse.
The cost of extended health care is already high, especially in the MD, DC, NOVA area and inflation will continue to impact the cost of care. Often, we assume that health insurance and government programs will pay for this kind of expense but that would be a mistaken assumption. Health insurance and Medicare pay for skilled health care services for acute conditions that have an expectation of recovery. Long term care services, on the other hand, are unskilled and custodial in nature, such as helping someone take a shower, transfer out of a bed or chair, get dressed, etc.
The best leverage value of insurance is still traditional long term care insurance, meaning it has the most amount of protection for the least amount of money.
A quick example
Let’s say Bill (age 60) and Susan (age 58) buy an $8,000/month benefit and a $400K pool of dollars, which are linked together by adding the “shared care” rider. The benefits would be available after a 90-day elimination period after qualifying for coverage (cognitive or functional impairment). In this example, there is no inflation COLA, but it is an option to consider. Bill pays $1,918/year and Susan pays $2,828/year (women live longer and claim more often). The combined premium of $4,746 purchases a combined pool of $800K, resulting in a leverage ratio of .006 (4746 divided by 800,000).
At the end of the day, 6/10 of 1% is an impressive unit cost when we think of different kinds of insurance we may purchase as consumers.
Start planning now
Purchasing long term care insurance through the workplace may also result in group discounts, easier underwriting, unisex pricing, and the convenience of a list bill.
With proper planning in your working years, you can help preserve family relationships and safeguard your financial future.
Written by Jeffrey V. Merwin, CLTC, CLU, RHU, Senior Director of Brokerage, Capitol Metro Financial Services
Jeff Merwin has over 31 years in the financial services industry and consults with financial advisors and insurance professionals to assist them with implementing long term care plans for their individual and group clients. A featured speaker and CE instructor, he has provided training and consultation to over a thousand agents and advisors.
Photo by stevepb