While we may not know what health issues await us, if we live long enough, there’s a chance we will need some form of long-term care—for ourselves or for members of our families. If that occurs, the rising cost of care—and the uncertainty of the ultimate cost—could impact achieving your financial goals. Having a plan in place for long-term care needs may help you and your loved ones navigate a difficult time without additional financial and emotional stress.
There are several factors to consider when it comes to planning for long-term care:
Impact on Your Family and Finances
If you ever considered purchasing long-term care insurance, you may have wondered if the insurance policy suffices as your actual long-term care plan. The insurance policy simply funds the plan; the plan should be developed in advance of ever requiring care, and starts by addressing the following questions:
- How would providing care affect my family emotionally?
- How would providing care affect my family physically?
- How would paying for professional help affect my family financially?
Anyone who has gone through a long-term care experience with a friend or family member will understand why these questions are important to ask; they may have experienced firsthand the challenges of caring for someone who can no longer fully take care of themselves.
Perhaps one family member assumes the responsibility of becoming the primary caregiver. This may be because they are the only family member who lives close to the family member needing care. Over the months and years, serving as primary caregiver can be exhausting, especially when simultaneously trying to tend to their own family’s needs.
Beyond the physical toll, consider whether the family member requiring care depletes their savings and needs to help fund the care. What if the primary caregiver is the only one who can afford to help financially or is the only one willing to help financially.
Fortunately, if these questions are answered with your family beforehand, and a plan put in place as to who will handle certain responsibilities regarding care, expectations can be set ahead of time and some of the challenges potentially reduced or eliminated.
Plan of Care
Another factor to consider involves determining the personalized structure, intention, and direction of your care²:
- Where would you want to receive care?
- Who would you want to physically provide the care?
- Who would you want to coordinate the care?
When many people think about where they would want to receive care, 86% say they would like to remain at home.3 Indeed, 51.5% of all long-term care insurance claims begin at home and some remain at home the entire time.3 57% of all long-term care claims utilized a facility by the end of the period they are on claim for the long-term care insurance policy and/or they pass away.3 As the patient’s condition continues to decline, there are simply not enough resources available to remain in the home, even with the help and support of professionals and family.
When asked who would provide care, some may say their children will take care of them—even though they may have not actually had this conversation with their children. It’s critical to discuss this beforehand with your children or whomever you have in mind to serve as caregiver, as well as determine how and who will coordinate the care.
Other care considerations:
- The role of caregiver may be extremely physically, emotionally and/or financially challenging, but hiring a professional/licensed caretaker may potentially lift the heavy burden off the family.
- When it comes to who will coordinate the care, think about designating at least one family member as care coordinator.
- Take advantage of concierge services that many of today’s long-term care insurance policies offer. This means the insured will have a dedicated representative from the insurance company to personally handle their claim from start to finish.
Funding the Plan
The final area to address is how to fund your long-term care plan²:
- How will you financially pay for the care?
- What other planning have you done?
Understanding your options:
- If you are a high-income earner who has created sufficient savings, you may be able to self-insure, though you might miss out on the tax advantages a long-term care policy may provide.
- If you hold most of your assets in qualified accounts such as an IRA and 401(k) and are planning to fund your own cost of care, you will need to pay taxes when you withdraw those funds.
Here’s an example: If you are in the 25% tax bracket, and require $250k of care over 4 years, you would need to withdraw $335k from your IRA and pay $83,750 in taxes to equal $251,250 to pay for your care.
$335,000 - $83,750 = $251,250
On the other hand, if you purchased a long-term care policy for $75,000, you may be able to leverage the insurance company and receive a $250,000 tax-free benefit.
- Many policies will provide a tax-free death benefit on the original premium if the policy is not exercised before death. Many policies also provide a residual death benefit, which means even if the policy benefit has been exhausted, the policy will provide a small tax-free death benefit to help pay for final expenses.
- If you are working within a budget or have a specific amount of funds to allocate towards incorporating long-term care into your financial plan, there are a wide variety of funding options and policy designs to potentially meet your needs. Your Financial Advisor can assist you with this decision.
- If you have already completed some long-term care planning, you can ask your Financial Advisor to include that policy in your financial plan. For example, you may have a long-term care policy that was purchased through your benefits at work and the policy may be portable (which means you can take it with you when you leave your company). The policy may provide a $50,000 benefit, but your plan recommends a total of $250,000 of long-term care benefits. You can keep your current policy and add an additional policy into your plan to meet your needs as they evolve.
A final point to keep in mind is that you will need to make sure you qualify for long-term care based on your current health status.
Speak to Your Financial Advisor
Planning ahead for your own care or the care of a loved one may help to provide certainty in uncertain situations. Speak to your Financial Advisor today about incorporating long-term care in your comprehensive financial plan.
Working With Janney
Depending on your financial needs and personal preferences, you may opt to engage in a brokerage relationship, an advisory relationship or a combination of both. Each time you open an account, we will make recommendations on which type of relationship is in your best interest based on the information you provide when you complete or update your client profile.
When you engage in an advisory relationship, you will pay an asset-based fee which encompasses, among other things, a defined investment strategy, ongoing monitoring, and performance reporting. Your Financial Advisor will serve in a fiduciary capacity for your advisory accounts.
For more information about Janney, please see Janney’s Relationship Summary (Form CRS) on www.janney.com/crs which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.
By establishing a relationship with us, we can build a tailored financial plan and make recommendations about solutions that are aligned with your best interest and unique needs, goals, and preferences.
Contact us today to discuss how we can put a plan in place designed to help you reach your financial goals.
1. ASPE, Most Older Adults Are Likely to Need and Use Long-Term Services and Supports, January 2021
2. Certified Long-Term Care (CLTC®), Creating Your Written Plan of Care
3. American Association for Long Term Care Insurance, Most Long-Term Care Insurance Claims Begin At Home, March 2019
This is for informative purposes only and in no event should be construed as a representation by us or as an offer to sell, or solicitation of an offer to buy any securities. The factual information given herein is taken from sources that we believe to be reliable, but is not guaranteed by us as to accuracy or completeness. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. Employees of Janney Montgomery Scott LLC or its affiliates may, at times, release written or oral commentary, technical analysis, or trading strategies that differ from the opinions expressed within. Janney makes no representation that an individual will obtain gains or losses similar to those illustrated. The concepts illustrated here have legal, accounting and tax implications.
Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting, or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.
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