Hybrid policies, aimed at affluent Americans, offer long-term-care benefits along with potential death benefits.
Last year, after finishing with college tuition for their three children, Jessica Galligan Goldsmith and her husband, James, treated themselves to something she had long wanted: long-term-care insurance.
It hasn’t been cheap. The couple, both lawyers in their mid-50s, will shell out more than $320,000 between them over a decade. For that, they will be able to tap into benefits topping $1 million apiece by the time they are in their 80s, the age when many Americans suffer from dementia or other illnesses that require full-time care.
Plus, the policies pay out death benefits if long-term care isn’t ultimately needed, and most provide 10% to 20% of the original death benefit even if the long-term-care proceeds are fully tapped.
Such policies that combine long-term-care coverage with a potential life-insurance benefit are called “hybrids,” and they are reshaping the long-term-care niche of the U.S. insurance industry just as it had appeared headed for obsolescence, financial advisers say. The Goldsmiths were among 260,000 purchasers last year nationwide of these hybrids, according to industry-funded research firm Limra, far outpacing the 66,000 traditional long-term-care policies sold in 2017.
When long-term-care insurance took off in the 1990s, insurers aimed for the broad middle class of America. The pitch was that policies would save ordinary families from entirely draining their savings, leaning on children or enrolling in the federal-state Medicaid program for the poor. (Medicare pays for nursing-home stays only in limited circumstances.)
Now, many insurers are finding their best sales opportunity with wealthy Americans. Many of these people may be able to afford costly care later in their lives, but they are buying the contracts to protect large estates, advisers say.
Ms. Goldsmith wanted long-term-care coverage partly because her legal specialty is trusts and estates and she has seen families whose seven-figure investment portfolios were devastated by years of care for spouses.
“What felt like a good nest egg” can be hit by “astronomical expenses,” says Ms. Goldsmith, of Westchester County outside New York City. Their policies are from a unit of Nationwide Mutual Insurance Co.
According to federal-government projections, about a quarter of Americans turning 65 between 2015 and 2019 will need up to two years of long-term care. Twelve percent will need two to five years, and 14% will need more than five years. At $15 an hour, around-the-clock aides run $131,400 a year, while private rooms in nursing homes top $100,000 in many places.
Hybrids can cost even more than traditional standalone products because they typically include extra features. There is wide variation across the hybrid category and the type the Goldsmiths bought (known as “asset-based long-term-care”) includes a particularly valuable feature: a guarantee that premium rates won’t increase.
Traditional long-term care policies fell from favor in the mid-2000s after many insurers obtained approval from state regulators for steep rate increases—some totaling more than 100%—due to serious pricing errors. In May, Massachusetts Mutual Life Insurance Co. began applying for average increases of about 77% that would apply to about 54,000 of its 72,000 LTC policyholders. Until this move, MassMutual hadn’t previously asked longtime policyholders to kick in more to better cover expected payouts.
Affluent buyers also can afford to pay for their hybrid policies within 10 years, as many insurers require. However at least one big carrier, Lincoln National Corp. , has begun allowing people in their 40s and early 50s to spread payments over more years, provided they fully pay by age 65.
Besides the death benefit—which is as much as $432,000 on a combined basis for the Goldsmiths—hybrids also include a “return of premium” feature. This allows buyers to recoup much of their money if they want out of the transaction, albeit without interest.
“We call these ‘live, die, change your mind’ policies,” says Natalie Karp, the Goldsmiths’ agent and co-founder of Karp Loshak LTC Insurance Solutions, a brokerage in Roslyn, N.Y.
About a dozen insurers still offer traditional long-term-care policies that typically lack those features. They charge more and provide shorter benefit periods than they did in the past. But Tim Cope, a financial adviser in South Burlington, Vt., for insurance brokerage NFP, says the good news is that “policies continue to pay for much-needed care, and changes in their policy design, pricing and underwriting are an effort to minimize premium increases on recently issued and new policies.”
Many advisers favor standalone and hybrid offerings of three of the nation’s largest and financially strongest insurers: MassMutual, New York Life Insurance Co. and Northwestern Mutual Life Insurance Co.
Ms. Goldsmith says she was attracted to the Nationwide hybrid because it doesn’t require submission of receipts to obtain the long-term-care proceeds. Benefits are payable in cash when a physician certifies a severe cognitive impairment or inability to perform basic activities, such as bathing, eating and dressing. Payments are capped at specified monthly amounts. For the Goldsmiths, the monthly benefit starts at $9,000 per spouse and grows with an inflation adjustment to more than $15,000 in their 80s.
“Receipts are very hard for older people to deal with, especially when stressed by caring for a disabled spouse or being disabled themselves,” Ms. Goldsmith says.
If your children depend on you financially or they’ve come to count on you as a regular babysitter, you’ll all need to address what comes after you retire.
Seniors who have been looking forward to moving to a less expensive area, living in an RV as long as their health permits or downsizing in every possible way, may need to consider others in their lives who will be affected by these changes.
US News & World Report’s recent article, “The Talk to Have With Your Kids Before You Retire,” acknowledges that this can be uncomfortable for some parents. However, parents need to prepare adult children for their impending retirement. It’s crucial to begin financial discussions early in retirement. That makes it easier in later years, when cognitive decline can affect decision-making. Talk with your children about these things regarding your retirement:
Notice. Your retirement may affect your children, especially if you plan to move or are assisting them financially. Let them know of your retirement plan five years prior to leaving the workforce, and remind them about it every now and then.
Financial info. Some parents don’t want their kids to know the details of their finances, while others share information and even involve them in the process. If you’re more open and honest with your kids about your financial information, they’ll feel secure that their parents are OK. If you are struggling, you should also let them know that.
Financial support. You may need to stop supporting your kids so that you can retire. If you have a kid living with you in the house and you’re helping to pay their bills, start working on a strategy to get them off your payroll and out of the house.
Estate plan. Talking to your children about your estate planning to avoid confusion and sibling rivalry during a very stressful time. Talk about which child will be executor, so there are no surprises.
New lifestyle. An important discussion between parents and children is how you want to live. This includes location, which might change with the seasons, deciding if you want to live close to children and grandchildren, or prefer a spot with opportunities to enjoy retirement. You should also let your kids know your preferences for an assisted living facility or a nursing home, and discuss paying for long-term care.
Share important contact information. Give your children a list of your legal and financial team members: estate planning attorney, CPA, financial advisor, banker and any other professional who they would need to be in touch with, if something happened to you. If someone other than your children is your executor or successor trustee, that person should have the same information.
America is aging, and by 2050, there will be nearly 88 million seniors over age 65. With this huge demographic shift, adult children will find themselves with a new role.
It is not unusual in many families that as parents age, their children take on the role of caregivers. However, the sheer number of people who will be over age 65 in coming years, will make some big changes in our nation, as reported by Fox Business in the recent article, “Aging parents are the new ‘children.’”
One concern is that aging parents can lose their mental abilities. The Alzheimer’s Association says that every 65 seconds, someone in the U.S. develops the disease. It’s now the sixth-leading cause of death. This can create additional long-term care needs for parents and result in an emotional and financial burden on adult children.
Parents with physical limitations may have difficulties living independently. Therefore, you should understand your parents’ long-term plans and how they will impact you. Let’s examine some of the things you can do, as your parents go through the aging cycle.
Family Conversations. While talking to your parents about these topics now may be uncomfortable, it will save you a lot of stress, time, and money in the future. Parents who want to preserve autonomy should express their wishes. Parents should discuss their healthcare wishes, the what ifs and finances now to discover what options they may have for care. It’s important that adult children understand details of their parents’ financial situations, before they’re unable to communicate due to incapacity or death.
Get the Family Affairs in Order. Create a system to help with gathering information. This should include medical histories and estate plans. Start to organize information with your parents as early as possible. Adult children should be sure that their parents have a will, a trust (or both), a durable power of attorney for property and a durable power of attorney for healthcare.
Determine Parents’ Long-Term Financial Needs. It’s extremely expensive to provide care for aging parents. Seek professional guidance to determine how much of your parent’s savings is currently allocated to pay for healthcare in retirement, not covered by Medicare. Look at long-term care insurance.
Have an Actively Involved Relationship. If you see your parents on a regular basis, keep your eyes open for any kind of change in their behavior or signs that things are not right: stacks of unopened mail, phone calls from people you don’t know, etc. If you do not live near your parents, ask an estate planning or elder care attorney for recommendations for social workers or elder care services to help your parents. They can do things like take parents to medical appointments, talk with care facilities on your behalf and keep you apprised of your parent’s well-being.
Your parents may or may not enjoy the “golden years” that we envision, but some preparation now, including having the tough discussions, will at the very least make it easier in the future.
Asset Protection, Capacity, Elder Care, Elder Law, Estate Planning, Long-Term Care Planning, Medicare, Paying for a Nursing Home, Planning for the Future, Power of Attorney, Probate Court, Retirement Planning, Trusts, Wills
Hit a spring pothole and you can lose a tire. But hit a pothole with your financial plan, and you may be in for a bigger problem than replacing a tire.
Do you have an up-to-date roadmap to your retirement? Keeping your finances, investments and retirement plan on a smooth road has become more and more challenging. Every day seems to bring a new regulation, investment product, or app that claims to offer the best route. You may need a guide—but how do you know who to choose?
Kiplinger’s recent article, “5 Bases You Need Covered With Your Retirement Plan,” says there are plenty of financial professionals today who can get you started down the right path with investment advice. However, a professional who limits his or her professional life solely to investing advice, isn’t going to get you comfortably and confidently to your retirement goals. Be sure you have someone who will concentrate on these five key areas of your financial life:
Income Planning. Your retirement could last for decades. You must be certain that you’ll have reliable income streams to pay your monthly expenses. This area typically should cover things like Social Security maximization, income and expense analysis, inflation, a plan for the surviving spouse, longevity protection and investment planning. Once your income plan has been created, you need to analyze your remaining assets (those that you won’t have to draw from every month). This should cover your risk tolerance, adjusting your portfolio to reduce fees, volatility control, ways to reduce risk while still working toward your goals and comprehensive institutional money management.
Tax Planning. Your comprehensive retirement plan should include strategies to decrease tax liabilities, such as determining the taxable nature of your current portfolio, possible IRA planning, looking at ways to include tax-deferred or tax-free money in your plan, prioritizing tax categories from which to draw income initially to potentially reduce your tax burden and considering ways to leverage your qualified money to leave tax-free dollars to your beneficiaries.
Health Care Planning. Retirees today must have a plan to address rising health care costs with little expense. Strategies should include examining Medicare Parts A, B, and D, reviewing options for a long-term care plan and legacy planning.
It’s critical that your hard-earned assets go to heirs and loved ones in the most tax-efficient manner possible. Your financial adviser should work collaboratively with a qualified estate planning attorney to help with these tasks:
Maximize estate and income tax planning opportunities;
Protect any assets in trust and ensure that they’re distributed probate-free to beneficiaries and
Prevent your IRA and other qualified accounts from becoming fully taxable to beneficiaries upon death.
Your estate planning attorney should be able to give you some recommendations for trustworthy and respected professionals. You’ll also need to do your homework, and interview more than two or three to make sure that it’s a good fit. Ideally, this person will work with you, your estate planning attorney and your CPA, as part of a team, for many decades.
The 2018 Northwestern Mutual C.A.R.E. (Costs, Accountabilities, Realities, Expectations) Study gathered the responses from more than a thousand American adults from the general population, with an oversample of 233 American adults age 35 to 49 (for a total of 413) and an oversample of 709 experienced caregivers (for a total of 987).
The study found that 30% of the respondents identify as current or past caregivers and 22% expect to become caregivers in the future. However, even though half of American caregivers say the care event was planned, many are still not prepared for the financial obligations, which seem to be increasing each year.
The survey found that 70% of caregivers provide financial support. In addition, 34% of current caregivers spend between 21% and 100% of their monthly budgets on caregiving-related expenses. Of those expenses, on average, $273 is spent on medicine/medical supplies and $159 on food, the survey found.
To cover caregiving costs, roughly 66% of experienced caregivers said they decreased their living expenses (significantly higher than the 51% who said so last year), according to the survey. However, the survey also found that people who believe they will provide care in the future, aren’t getting ready. About 57% of future caregivers anticipate incurring personal costs as a function of providing care. A total of 48% have not planned at all—a big increase from 35% last year.
“While financial expectations for caregivers continue to grow, unfortunately planning is taking a backseat,” Williams-Kemp said in a statement. “In an environment of rising costs and fluctuating economic and health care realities, winging it isn’t an option. Being proactive before a long-term event happens can help ensure that you can still take care of your own needs, while caring for someone else’s well-being.”
Americans also aren’t planning for their own long-term care events. The study found that 75% of those surveyed said they haven’t planned for their own long-term care needs. Of those who did take steps to prepare, 52% included provisions in their financial plan, 42% purchased a long-term care product and 35% increased their savings.
The study also revealed that while many Americans expect that their partner or children will be the ones to take care of them if and when they need help, more than two thirds have never actually discussed this with their family members. It’s not an easy subject to broach, but one that should be part of a larger conversation about aging and expectations.
One-third of the people with younger-onset Alzheimer’s, who responded to a 2006 survey by the Alzheimer’s Association said it took them somewhere between one to six years to receive an accurate diagnosis of Alzheimer’s. Subsequent studies by the Alzheimer’s Association have estimated that as many as 50% of people of all ages with the disease never receive a diagnosis.
Unfortunately, there is no easy blood test that can be used to detect the brain disease. Diagnoses are usually confirmed through a combination of neuropsychological exams, analyses of a patient’s family history and costly spinal taps, MRIs, PET and CAT scans to view plaques and tangles in the brain.
Meanwhile, because of this delay, younger people can have issues at work because of the symptoms.
“Families will come in to meet with me and I’ll say, ‘Are you still working?’ and they’ll say, ‘No, I got laid off,’ or, ‘I took an early retirement, because I wasn’t sure what was going on,’ and lo and behold they realized later they had Alzheimer’s,” said Melissa Grenier, manager of the New Hampshire Alzheimer’s Association.
Because of the time it takes to get an accurate diagnosis, patients with early dementia frequently are fired or move from job to job. Most patients displaying symptoms are not aware of it at the time. As a result, it can be discouraging and frustrating.
If a person had a heart condition, they would be aware of the illness and would be able to work with their employer to ensure that they continued to have a job and health insurance coverage and/or disability insurance coverage. However, if they are fired or stop working before receiving an Alzheimer’s diagnosis, they will lose the financial safety net. Treating a condition like Alzheimer’s costs hundreds of thousands of dollars.
The person with Alzheimer’s is usually the last to know that there are issues. Those patients who are aware of changes in behavior, can be reluctant to speak with their employer. They fear that they could lose their positions.
Families facing early-onset Alzheimer’s should speak with an elder lawyer. This is not an easy situation, and professional help will be needed.
A survey found that Gen Xers are less concerned about retirement planning than they are about other financial challenges.
Don’t forget that group that’s between the headline grabbing millennials and boomers: Generation Xers, Americans between ages 36-55. A survey from the IRA (Insured Retirement Institute) appears to have uncovered a significant knowledge gap in this group when it comes to personal finance.
The results showed that only 20% of Gen Xers have talked to a financial advisor, that only one-third of Gen Xers have tried to figure out what they’d need to have saved to retire and that only 23% of the Gen Xers who have tried to save for retirement, have more than $250,000 in retirement savings. However, the research shows that roughly 58% of the Gen Xers are somewhat or very confident they will have enough cash to cover basic expenses in retirement.
The survey didn’t break down most of the results by income or asset level, but they did look at the use and lack of use of a financial professional. Participants with financial professionals might be the ones who have more overall financial flexibility, with 82% of the Gen Xers with financial advisors responding that they’d discussed retirement planning, and 61% said the advisors had discussed investing. Those discussions may have contributed to 87% of the Gen Xers with advisors saying they were confident about having enough income to cover their basic expenses in retirement. However, even the Gen Xers with advisors said they had grave doubts about their ability to handle other major financial challenges.
Here are some of the other findings:
Covering long-term care (LTC) costs. Just 63% of the Gen Xers with advisors said they were somewhat or very confident about having enough money to pay their long-term care expenses. It looks like advisors hadn’t done much to help Gen Xer clients with that concern. Only 9% had talked about planning for cognitive decline, like dementia or Alzheimer’s. Only 29% had talked to their clients about insurance.
Addressing parents’ LTC needs. A little over half of the Gen Xers with advisors said they were somewhat or very confident about being able to assist with their parents’ LTC bills. The survey didn’t ask Gen Xers how many had talked about that with their advisors.
Paying children’s college bills. Many experts in the field suggest that Gen Xers should prioritize their retirement planning and leave the children’s college bills second. However, Gen X parents say the money to put their children through college must come from somewhere. Only 51% of the Gen Xers with advisors said they were somewhat or very confident they’ll have enough money to defray their children’s higher education expenses.
While their priorities are admirable, this survey paints a picture of a generation that has not yet come to terms with the financial realities of being an adult. Expect this to change in the near future.
If you haven’t been saving for retirement, maybe you’ll do better if you are focused on saving for assisted living. One well known survey, 2017 Genworth Cost of Care Survey, reports that you’ll need $1,517 a month for adult day health care. Those fees are only going in one direction—up!
Adult health day care is not inexpensive in our country. If all you need is adult day health care, consider yourself lucky. It’s a bargain at more than $1500 a month, compared to $3,750 for an assisted living facility, $3,994 for home care services, and $4,099 for home health aides.
If you want some privacy, the median cost is $7,148 for a semiprivate room at a nursing home and $8,121 for a private room. Will you be able afford it? Wealth Advisor poses this question in its recent article, “Have Clients Planned For Long-Term Care?”
These alarming figures should get you thinking. If you don’t think about the possibility that you may require some form of long-term care services—either a home health aide, an assisted living facility, or a nursing home—then you run the risk of wiping out your entire life’s savings to pay for it, even if it’s a only a short period of time when you or a spouse needs such care.
So, how do you avoid that?
Medicaid isn’t a viable option for most people, because of the relatively low state income thresholds to qualify for the program. One option is to purchase long-term care insurance (LTCi) through a reputable broker or agent. LTC insurance policies typically provide coverage in these situations:
Assisted living facilities
Adult day care
However, getting a policy isn’t as easy as it may at first appear.
LTC policies can vary quite a bit, based on factors like the insurer, area of the country and your health status. Find out what benefits will be provided and for what duration. You should also determine the tax implications for your circumstances. Finally, your out-of-pocket cost is a big factor.
Your best course of action –in addition to saving for retirement—is to start shopping for an LTC policy for you and your spouse long before you need it. Once you know your available options, you’ll be able to make an informed decision.
You can’t avoid disasters, but you can prepare for them. For retirements, the top two threats are the cost of long-term care and bear markets.
Recent headlines have brought a steady stream of calamity, on a major scale: earthquakes, hurricanes, floods, ice storms, mud slides and forest fires.
Kiplinger’s recent article “Disaster-Proof Your Retirement Plan” says that many people who prepared still lost their homes and, in some instances, family. Others who did nothing were fortunate to escape peril. Because misfortune can work haphazardly, people can become complacent.
Many pre-retirees understand the importance of planning, but it’s just not a priority for them “just yet.” Now they’re healthy, making money on their investments and enjoying a steady paycheck. They know they’ll have to buckle down and get on it, but not right now.
However, like any type of disaster preparation, the sooner you solve your vulnerabilities, the more security you’ll have. Here’s a closer look at some of the issues and some solutions.
Many people have long lives, but don’t enjoy them due to health issues. If you’re 65, there’s better than a 50-50 chance you’ll need long-term care at some point in the future, according to the U.S. Department of Health and Human Services. An illness could wipe out your assets quickly. It could leave your surviving spouse with little to live on when you pass away.
It is essential to plan ahead. This is because an extended health care crisis can cost as much as $10,000 per month, even for home care. Medicare doesn’t cover long-term care costs. Without a financial plan to deal with this, retires may be forced to spend down their assets.
There are several financial strategies that can be applied to address long-term care. Traditional long-term care insurance is a good choice, if you’re in your 40s or 50s and still healthy. For those in their 60s, or those who don’t want to pay ongoing premiums, you might buy a single premium annuity or life insurance policy with a long-term care rider. Another option is an income-based annuity, which is typically much easier to qualify for, health-wise.
If your retirement income plan relies heavily on your investments, poor market performance early in retirement can have a disastrous impact on how long your money will last. A simple strategy for this problem is the "bucket” approach. Calculate your required annual expenses and, if possible, move four years’ worth into safer investments like money-market funds, very short-term bonds or an annuity. When we see the next market correction, you’ll be able to weather the storm and use these safe assets to cover your living expenses.
When it comes to retirement, knowing that there are real threats is a start. However, taking action to prepare for these possibilities now, will help you in years to come.
People like to try to solve problems in a simple manner, but like do-it-yourself dentistry, things that sound like simple solutions to estate planning situations could lead to problems.
People who own their own homes, especially when the mortgage is paid off, often think they should add their adult child or children to the deed so the asset passes to their heir(s) without going through probate. However, this seemingly simple step could lead to a few issues, one of which is making you ineligible for Medicaid for a period of time. That’s just for starters, as reported in a recent article from nj.com, “The risks of changing your home's deed.”
If the home has unrealized capital gains when he passes away, only his half of the value of the home would be eligible for a step-up in basis. If a senior goes ahead and sells the home while he’s still alive, he can exclude up to $250,000 of capital gains from tax, if it was his primary residence in two of the five years directly preceding the year it was sold.
However, if the daughter lives out of state, adding her to the deed will mean that her half won't be eligible for the exclusion because her primary residence is in another state.
In addition, if the daughter has creditors to whom she owes money, those creditors could attach a lien to her half of the senior’s home.
One other thought is whether the senior owns other assets or has long-term care insurance or other resources to pay for long-term care, should it become necessary.
If the senior in our scenario transfers half of his home to the daughter, it could be an issue if he needs long-term care and needs to qualify for Medicaid. Medicaid has a five-year lookback to determine if you gave assets away within five years of your application for benefits. Transferring the home could make the widow here ineligible for a time.
This sort of decision is best made with the guidance of an experienced elder law attorney who can address the specific circumstances and make sure that all parties concerned understand the implications of the decision. It could be costly for you or your heirs, so you’ll want to be fully informed.
Elder Care, Elder Law Attorney, Joint Tenant with Right of Survivorship, Long-Term Care Insurance, Long-Term Care Planning, Medicaid Nursing Home Planning, Medicaid Planning Lawyer, Medicaid Trust Planning, Step-Up Basis