5 Creative Ways to Plan for and Fund Long Term Care

Creative LTC CoverageAbout 70% of of people who turn age 65 will need some type of long term care in their lifetime, according to the U.S. Department of Health and Human Services, but few are prepared to pay for that care.

Despite that reality, most clients are “pretty much in denial” about long term care planning, says San Francisco-based certified financial planner and public accountant Larry Weiss, with NEXT Financial Group. Typically, the only people interested in long term care insurance (LTC insurance) have had to take care of their parents.

“Most clients aren’t aware of the needs or likelihood they’ll need long term care; they only know that long term care insurance, from their perspective, is too expensive,” says Weiss.

In response, financial planners have developed creative ways to fund long-term care…

Life Insurance: People resistant to paying ongoing premiums for a product they may never use could find a solution in buying a life insurance policy with a long-term care rider.

“Buying a rider that increases the LTC benefits will allow you to get more money over time,” says Weiss. “It’s not the perfect solution, but these policies can be bought single or joint life, etc.; there’s a lot of flexibility.”

Lifetime Annuity: A lifetime annuity is an income stream that you buy. It can be a good alternative to LTC insurance. An increasingly common practice is to buy a deferred lifetime annuity that could be used to cover long term care costs if the need arises. You take a lump sum of money and purchase a monthly income stream that will start at some point in the future — a date when you think you might need long term care. If you need long term care, then you have money to pay for it. If you do not, then the income can supplement your lifestyle. Best of all, deferred lifetime annuities can be purchased with riders to guarantee return on your principal, cost of living adjustments, survivor benefits and more.

Use investment returns to pay for LTC insurance: For example, a client with around $1.5 million in investments could take $100,000 of their assets, put it in an investment that produces a 5-6% return, and use it to pay for long term care insurance premiums.

Reverse Mortgages: Reverse mortgages are another creative way to fund long term care and can help pay off existing mortgages or provide an ongoing income stream for as long as the borrower remains in the home. The loans, most of which are originated through the federally-insured Home Equity Conversion Mortgage program, enable qualified homeowners age 62 and older to borrow against their equity in the form of a non-recourse loan.

The key is to be practical about whether your home is suitable for aging in place, says Weiss.

“If you’re going to do a reverse mortgage, you need to really make sure you can live in your house for a long period of time so that it makes sense,” he says.

Cohousing: Another option for people who want to age in place: cohousing. Charles Durrett, an architect with McCamant & Durrett Architects and author of handbook “Senior Cohousing: A Community Approach to Independent Living,” says he has encountered seniors who view cohousing as a way to save money and stay in their homes as long as possible.

Growing up in a small town of 325 people, he saw how his grandmother—who was bedridden for the last 15 years of her life—was able to remain in her home thanks to more than a dozen friends and neighbors who took care of her.

Cohousing, he says, is reminiscent of small town care. “Some people can still fall through the cracks,” he acknowledges, “but in a setting like this, if you set it up, seniors create their own senior cohousing community.”

In many cases, communities set up onsite apartments for a caregiver whom they collectively hire. The caregiver spends a few hours a week with multiple members of the community who need care; members pay for their own care, but at more economical rates than hiring individual caregivers, according to Durrett.

“In contrast, my father had his own in-house caregiver, and it cost $7,000 a month,” he says. “My mother was in assisted care, and it cost $4,500 a month. None of it is cheap.”

While there are monthly fees to live in a cohousing community, it’s typically less expensive than facility-based long-term care, considering Genworth’s 2014 Cost of Care Survey.

“People will definitely save money living in senior cohousing,” says Durrett, citing a survey he conducted of about 200 people who reported saving between $200 and $2,400 a month by living in a cohousing community rather than a single-family home. Those savings can come from downsizing, whether it’s leaving a large house with an even larger energy bill, or going from two cars to one, he says.

“When people refer to the power of community, there are many advantages, and the most important is the day-to-day quality of life,” says Durrett. “If there’s someone who lives right across the lane from you, you can have folks readily come help.”

Creative Long Term Care Resources:

How does long term care impact your retirement plan?



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