The Myth of
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by Bill Comfort, CSA®, CLTC®
April 16, 2019
April 16, 2019
Most people who say they are “self-insuring” for the cost of long-term care are not; they are simply “betting” that they will never need care.
How do I know this?
Because there is no explicit plan to cash-flow the monthly costs or to irrevocably assign a meaningful amount of present-day capital to a long-term care fund that can never be used for anything else.
What would a significant care event actually cost, and how would it affect both assets and on-going income needs? Not just the dollars to be spent but also the emotional cost of suddenly jeopardizing all of a couple’s lifestyle and on-going financial security.
It's an "all-in" bet.
How do I know this?
Because there is no explicit plan to cash-flow the monthly costs or to irrevocably assign a meaningful amount of present-day capital to a long-term care fund that can never be used for anything else.
What would a significant care event actually cost, and how would it affect both assets and on-going income needs? Not just the dollars to be spent but also the emotional cost of suddenly jeopardizing all of a couple’s lifestyle and on-going financial security.
It's an "all-in" bet.
"By allocating nothing for care, you risk everything."
- Harley Gordon, Esq., Founder CLTC® designation
Consider a couple with a current or projected net retirement income of $10,000 per month. In addition to Social Security, they likely have $2.5 to $3-million or more in IRAs and other investments to securely produce that level of income. This couple is routinely told by the mainstream media, financial press, and even their financial advisors that, “They have enough to self-insure for long-term care.”
Maybe, after one spouse dies, the single survivor could self-insure. It certainly would be “easier” to simply reallocate “independent living” expenses for “disabled living” expenses for one. Income will cover most, if not all the costs.
The problem for couples is the first disability. Ask this question of our hypothetical couple:
“Sally, if Joe were disabled and needed care, could you live on $5,000 per month?”
The answer is always, emphatically, “NO!” In fact, the answer is likely still, “No”, at $6,000, $7,000, even $8,000 per month. LTC insurance funds the extra cost of care, over and above ongoing lifestyle needs. The problem is not $12,000+ per month in a nursing home, these people will likely never end up in a nursing home. But they will move heaven and earth to stay at home - or in as much of a home-like setting - for as long as possible. And even part-time home care will either destroy a couple’s financial security or their lifestyle. (Note that $5,000 per month only covers about eight-hours of home care a day, seven days a week.)
Now think about the impact of part-time home care on a couple with a $6,000 per month income. And the value of a $3,000 per month LTC insurance plan.
Financial planning requires client-specific customization; there is not a one-size-fits-all portfolio or plan. Long-term care planning must also be personalized, customized to each client’s unique family circumstances, financial resources, risk tolerance, tax and estate planning goals, and desired type of care (or desire to avoid certain kinds of care, like staying out of a nursing home).
A final thought: Another way to look at “self-insuring” for long-term care is not as an option you get to choose; it is the plan that is already in-force. Do you know what it will cost you, your spouse, your family?
Don't crap out, create a funded plan for care.
Maybe, after one spouse dies, the single survivor could self-insure. It certainly would be “easier” to simply reallocate “independent living” expenses for “disabled living” expenses for one. Income will cover most, if not all the costs.
The problem for couples is the first disability. Ask this question of our hypothetical couple:
“Sally, if Joe were disabled and needed care, could you live on $5,000 per month?”
The answer is always, emphatically, “NO!” In fact, the answer is likely still, “No”, at $6,000, $7,000, even $8,000 per month. LTC insurance funds the extra cost of care, over and above ongoing lifestyle needs. The problem is not $12,000+ per month in a nursing home, these people will likely never end up in a nursing home. But they will move heaven and earth to stay at home - or in as much of a home-like setting - for as long as possible. And even part-time home care will either destroy a couple’s financial security or their lifestyle. (Note that $5,000 per month only covers about eight-hours of home care a day, seven days a week.)
Now think about the impact of part-time home care on a couple with a $6,000 per month income. And the value of a $3,000 per month LTC insurance plan.
Financial planning requires client-specific customization; there is not a one-size-fits-all portfolio or plan. Long-term care planning must also be personalized, customized to each client’s unique family circumstances, financial resources, risk tolerance, tax and estate planning goals, and desired type of care (or desire to avoid certain kinds of care, like staying out of a nursing home).
A final thought: Another way to look at “self-insuring” for long-term care is not as an option you get to choose; it is the plan that is already in-force. Do you know what it will cost you, your spouse, your family?
Don't crap out, create a funded plan for care.
(c)2019 Comfort Assurance Group, LLC
