There are two sides of the coin of living longer. We often want to live longer to have great relationships with our grandchildren and great-grandchildren. You know, those youngsters with whom we can conspire against our children?
But then we don’t want to outlive our enjoyment either. When I can no longer taste the tracks in the Moose Tracks, Bunny Tracks or other tracked ice creams I crave, I’ll be ready to go!
Until that day, we live as stewards of our resources, the assets we accumulate and the incomes we receive from pensions, social security payments, and similar sources. Since we don’t want to waste them, we should examine the question of whether and how to prepare for the possibility that we will need more care than our spouse or family members can provide.
There are many other issues concerning long term care, but today I focus on whether to insure against the costs of needing residential nursing home care. I found a well written article by Dan Kadlec in the May 4, 2015, issue of Money dealing with this question.¹ But first, what is the cost if I do need facility care, the most expensive part of the topic?
In greater Kansas City, I think you can still find nursing facilities providing good care for $5,500, but you can certainly spend more. To compare, in Massachusetts, Genworth reported in its Cost of Care Survey 2015² that the average median cost of a semi-private room ran $353 per day or $128,845 per year.
Just to be clear, half of the nursing homes cost more than that. The cheapest was $81,000. My advice? Don’t look for a Golden Pond in the Commonwealth to sit beside during your last days. Genworth’s Survey listed the national average cost as $80,300.
Kadlec begins with a rule of thumb that you are a candidate for buying coverage to protect against this cost if you have assets between $200,000 and $2 Million. If you have less to protect than that, you may not have enough assets or income to pay the premiums. Plus the federal and state governments have the Medicaid safety net most of us help finance. At this point, you might have to hunt further to find a good quality facility that accepts Medicaid payments, but they are still available.
For over 30 years, I have favored an approach of determining the general gap you would have to cover that monthly cost after considering your pension and social security income and the income your invested assets will likely produce. In many cases, I find that gap to be only $2,500 to $3,000 per month, sometimes less. That amount of coverage for 3 to 5 years is much more affordable than insuring the entire 5 or 6 thousand per month.
Think about a wise philosophy about insurance in general. Today you can insure against almost every hangnail that occurs. But in my mind, insurance should cover risks you truly cannot afford to take. A long term care insurance salesperson may say you need to even over-insure the monthly cost because the risk is so great. My suggested three pronged approach will work well if properly planned in advance, and hopefully not leave you insurance poor!
By Ron Finke