Thinking ahead Featured

9:59am EDT April 22, 2005
While living a long life is ideal, many of us fear outliving our resources. Accordingly, we place a great deal of emphasis on building retirement assets so we have enough to sustain us through retirement.

"Enough" depends on many assumptions, including life expectancy, rate of return on investments, inflation rate, expected lifestyle, medical and general expenses during retirement, and assets such as life insurance benefits to provide for surviving dependents.

Another "enough" factor is the fact that the longer you live, the more likely you are to need long-term care. As such, retirement funding estimates could be grossly inadequate if possible long-term care is not considered in the calculations.

Paying for the costs
Medicare, the primary health care program for retirees, was not designed to address long-term care and nursing home needs. Medicare only pays for skilled or rehabilitative care , not for custodial care. In most cases, Medicare provides coverage only for the first 100 days of care, and then only if certain conditions are met.

Medicaid, a federal and state program, will pay for custodial care primarily provided in nursing homes, but only for the financially destitute. Spending down assets in order to become eligible for Medicaid is one planning strategy that could backfire. In addition to relinquishing your assets, you're left without much say in the type of the care you receive and where you receive it.

The reality is that for the most part, consumers are forced to pay privately for their care. Consequently, retirement plan assets are diverted from daily living activities to support the significant expense.

According to the official Web site of the Federal Long-Term Care insurance program (, these are the national average annual costs.

  • $52,000 for a semi-private room in a nursing home; estimated cost for 2030 is $190,600

  • $25,000 for an assisted living facility (in 2000); estimated cost of $109,300 in 2030

  • $20,000 for home care ($18 per hour); estimated cost is $68,000 in 2030

Few will have saved enough to pay for these services. Since the primary source of retirees' liquid assets is qualified accounts such as 401(k)s and IRAs, depletion is accelerated by the premature withdrawal (loss of future earnings) and premature payment of income taxes due. The impact of incurring these additional costs earlier in the retirement phase needs to be recognized in the planning process.

The role of long-term care insurance
The inclusion of long-term care insurance may be a cost-effective option when planning for a possible disability created by living a long life. Besides enabling you to keep your retirement portfolio and other assets intact for their intended purposes, insurance can help keep the family together and effectively preserve your dignity in the process.

Long-term care insurance does not replace the need for family involvement in providing care. Rather, it provides the funds to pay professionals to handle the toughest tasks, allowing the family to provide better care for a longer time in the home.

A great deal of uncertainty surrounds the long-term care insurance industry, mostly because these policies are relatively new to the market. The insurance industry has little experience to draw upon for accurate estimates and trends on the costs, frequency and duration of claims. Given that a baby boomer turns 50 every eight seconds, the uncertainty of the potential costs is growing exponentially. For these reasons, several companies have exited the market or have chosen to avoid long-term care exposures completely.

To buy or not to buy will depend on your answer to the question, "Should I become incapacitated, who do I want to take care of me and where do I want to be?" The sense of urgency is greater if there is a family history of a disabling illness such as diabetes, arthritis or Alzheimer's.

Brenda C. Dunn, CFP, CLTC, CSA, LUTCF, is an associate of National Financial Services Group ( She focuses on formulating and implementing strategies to help protect and enhance assets in an effort to secure financial success. Reach her at (770) 512-5144 or