From Standard & Poor's The Outlook The generation that grew up listening to The Beatles sing "Will you still need me, will you still feed me..." is now closing in on 64. If retirement is to be the most glorious of ages, it's imperative to plan ahead.
Baby boomers will be generally healthier than previous generations of retirees. But it's beyond dispute that the older people get, the more care they need. Today's retiring Americans will likely outlive their finances, according to the American Assn. of Retired Persons (AARP) and the National Assn. of Insurance Commissioners (NAIC). Those who don't prepare may find that living well into their 80s or 90s may not be such a great experience.
So, when planning for retirement or for the later stages in life, keep in mind that at least half of the population over the age of 85 requires help with such activities as eating, bathing, cleaning house, shopping, and using the bathroom, according to a McGraw-Hill (MHC) publication, Planning for Long-Term Care, portions of which can be viewed at MetLife.com by searching for "long-term care" (Standard & Poor's and BusinessWeek.com are both units of The McGraw-Hill Companies).
CHECKING IT TWICE. There are an estimated 83 million baby boomers in the U.S., and recent studies suggest that between 6 million and 12 million of them will eventually need long-term care. Many financial planners recommend long-term care insurance (LTCI) as part of overall retirement planning because long-term care is not covered by traditional health insurance policies.
In addition to MetLife.com, which has a handy checklist that may be helpful when comparing long-term care policies, other informative and comprehensive Web sites include www.AARP.org and www.NAIC.org.
Here are some of the benefits of LTCI:•If your family history predisposes you to certain diseases, LTCI may bring you peace of mind•Automatic inflation adjustments may be applied to the benefits, which keeps benefits from eroding with time•Coverage reimburses the insured for long-term care expenses•There are online tools available to help you decide which plan suits you best•Tax breaks are available for qualified LTCI policies, and generally the benefit payments received under such policies are tax-free•You can deduct premiums from your taxes as long as you itemize deductions and your medical costs are in excess of 7.5% of adjusted gross income
Here are some of the arguments against it:•Preexisting conditions are often excluded from coverage•Inflation protection can be expensive•Typically, benefits are a fixed amount per day of reimbursed expenses or a set percentage, which may not fully cover the cost once you need the care•Insurers can also increase premiums for entire classes of individuals, such as all policyholders over the age of 70•Different policies may use different definitions, making it difficult to carry out an apples-to-apples comparison of policies
NOT ACROSS THE BOARD. Long-term care is generally not covered through government-provided plans. Medicaid's long-term care program is not available to anyone who has more than $2,000 in assets. Nursing home expenses, which run upward of $30,000 annually and up to $100,000 in some areas, are not covered by Medicare.
Although all states have adopted some standards for LTCI to ensure consumer protection, insurance carriers can exit—and have exited—the business, leaving policyholders without coverage. Also, only 21 states have adopted critical consumer protections, such as shielding premiums from unreasonable rate increases.
Even though buying a policy when you are young and healthy is cheaper, premiums tend to increase as you get older, which may make LTCI harder no matter when you originally purchased it.
KNOWING THE LIMITS. LTCI can be confusing, but insurers try to offer many benefits and options. The goal is to allow you to keep your assets if you need long-term care, while offering many choices, from nursing home to in-home nurse, from assisted living to adult daycare. Some will even reimburse a family member for giving care, provided the person is licensed and/or qualified.
However, there are benefit limitations. According to the Health Insurance Assn. of America, LTCI policies typically cover about 70% of nursing home costs and 90% of assisted living costs. The average duration of coverage is about five years, and policies pay benefits for the full duration of expected care for about 85% of individuals who become disabled. As you review a policy make sure you understand exactly what is being covered.
As always, S&P recommends that you check with your financial planner or accountant for advice that is specific to your situation.
Sender is a reporter for Standard & Poor's Global Editorial Operations
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