Three Four Letter Words No One Dares to Utter

"The good news is we are living longer and the bad news is....we are living longer."
Michael Aun, businessman, author, and nationally recognized motivational speaker

You have done all the right things. You lived within your means and saved diligently. You have maintained a properly diversified portfolio through all the ups and downs of the market, you kept an eye on investment costs and used a variety of strategies to minimize taxes on your gains. As a result, you have accumulated a sufficient nest egg to fund your retirement income and provide a decent legacy for your children. Unfortunately, you could lose it all if you don't make the right moves to protect your assets. No, I'm not talking about the prospects of continued market volatility or a double-dip recession that usually dominate the news and everyone's minds. I'm referring to the three four letter words almost no one dares to utter.... long-term care which includes the expense for a nursing home stay, assisted living care, or home health care.

Why should this be a concern?

• According to the US Department of Health and Human Services, 70% of people who reach age 65 will require some home long term care at some point in their lives> Of those who need the care, over 75% of them will need it for over a year


• Current Life Expectancy after age 65 is now 17.9 years, meaning that your chances of needing assistance due to chronic conditions is greater than it would have been ten or twenty years ago.


• The cost of nursing care is not cheap. According to American Association for Long Term Care Insurance, the average cost of nursing care is $73,000 a year. The cost of home health care can be considerably less or more depending upon on what services are needed and how often the patient needs care.


• The cost of care has been going up an average of 6% per year for a number of years. At that rate, in twelve years, the average cost of care will be twice as much of what it is today, which would bring it up to $146,000 per year. Assuming the cost of care continues to rise at the same rate, in another twelve years - twenty four years from now, the cost of care will be $292,000 a year.


• Medicare only covers the cost of the first twenty days of skilled nursing care that follows at least three days of hospitalization. Medicare and your supplement may pay for an additional eighty days of care but only if a medical professional says you need skilled care and again only after a three day period of hospitalization.

So, what should or can you do about it?

What you should do about it really depends on what you would want to happen if you needed any type of long-term care.

Would you want your spouse or your child to take care of you? If so, what impact would that have on their lives?

If you would rather have a professional provide you the care needed, how would you pay for the care?

• What assets would you liquidate?


• How much more in taxes would have to be paid?


• What affect would the loss of your assets and potential income have on your spouse's standard of living?

All of these questions must be answered before a plan of action can be drawn so you are not forced to make tough decisions under duress. Preparing such a plan can make sure that loved one's lives are not disrupted, family stress is minimized and the quality of all family members' lives are preserved.

The next question that needs to be addressed is what can you do to protect your assets from being depleted by long-term care.

If you do have substantial assets in addition to your home and you are in reasonably good health, one option that you should consider is long term care insurance. Claim proceeds are not taxable and in many cases a portion of the premium can be deducted from your federal income taxes..

The earlier you apply for coverage, the greater your chances of being approved for coverage will be. According to the American Association for Long Term Care Insurance, the odds of someone in their 50's being approved for coverage is 86%. but declines to 55%. if they wait until their 70's. Naturally, the earlier you apply for coverage the lower your annual premiums will be.

Most of these plans cover care provided in a nursing facility, a place that provides assisted living care, and in one's home. However, the insured must either have a cognitive impairment, been approved by their doctor for care that is medically necessary or be unable to perform two out of six activities of daily living. Activities are bathing, dressing, eating, continence, toileting or transferring - going from a bed to a chair. These plans also can include compound inflation protection so after your first year of coverage, your daily or monthly coverage will increase 5% on a compound basis.