Do You Need Long Term Care Insurance? – Part 1

Jane Young, CFP, EA

Jane Young, CFP, EA

As retirement grows closer the decision on how you will cover potential long term care expenses becomes a serious concern.   Unfortunately, with the high cost of long term care (LTC) and the high cost of long term care insurance there is no easy solution.  LTC refers to services or support to help you with medical or non-medical personal care needs.   LTC can provide assistance with cognitive impairment and activities of daily living such as eating, bathing, dressing, using the toilet and assistance with incontinence.  About 80% of all LTC is provided in the home.

LTC expenses can be paid with a combination of personal or family savings, LTC Insurance and government assistance.  Generally Medicare does not cover long term care.  Medicare will provide 100 days of skilled nursing care following a 3 day stay in the hospital.  Medicaid will pay for LTC after most of your assets have been depleted but Medicaid is usually limited to skilled nursing home care.

The decision to purchase LTC insurance is straight forward for the affluent who can self-insure and for those with little or no assets who must rely on Medicaid for their LTC expenses.  The decision is more complicated for those who can’t afford to self-insure but want to protect their assets to provide a livelihood to a surviving spouse, an inheritance to children or want to avoid being a burden to family.

Individuals who are at the greatest risk for needing LTC are those with a history of a chronic condition such as high blood pressure or diabetes, or have family members with a history of a chronic condition.  You may also have a higher risk if you are in poor health or have poor diet and exercise habits.  Women are at greater risk than men because on average, they live 5 years longer.

According to a study using a microsimulation model performed by Kemper, Komisar and Alecxih, on average people currently turning 65 will need LTC for three years.   They found that 3 out of 10 people will rely on family for their care for more than 2 of these years.  They also found that 2 out of 10 people will need care for over 5 years.  Overall, their analysis indicated that 50% will have no out of pocket expenditures for LTC, 25% will spend less than $10,000 and 6% will spend over $100,000.

Additionally, based on information from leading insurance actuaries, the Association for Long Term Care Insurance reported that someone who buys a LTC insurance policy, with a 90 day elimination period, at age 60 has a 35% chance of using it before they die.  They also reported that the average stay in a nursing home is 2.3 years for men and 2.6 years for women. Most care is provided at home but statistics on this are limited.

My next column will address the cost of LTC and LTC insurance and the pros and cons of purchasing LTC insurance.

Timeless Tips for Investment Success

Jane Young, CFP, EA

Jane Young, CFP, EA

You don’t need to employ a lot of sophisticated techniques and strategies to become a successful investor.  The most effective tools for investment success are simplicity, patience, and discipline.  Below are some guidelines to help you get the most from your investments.

Invest for the long term.  Evaluate your situation, set some goals, create a plan and stick with it.   Keep money that you may need for emergencies and short term living expenses in less volatile investments such as money market accounts, CDs and bonds.   Investments in the stock market should be limited to money that isn’t needed for at least 5 years.  If you keep a long term perspective with the money invested in the stock market you will be less likely to react to short term fluctuations.

Maintain a diversified portfolio.  Your portfolio should be comprised of a variety of different types of investments including stocks, bonds and cash.  The stock portion of your portfolio should include stock mutual funds that invest in companies of different sizes, in different industries and in different geographies.  Don’t chase the latest hot asset class and don’t act on the hot stock tip your buddy shared with you at happy hour.  Create a diversified portfolio and rebalance on an annual basis.  It’s also advisable to avoid investing more than 5% in a single security.

Don’t Time the Market.  Many studies have found that market timing just does not work and can be detrimental to your portfolio.  The so-called experts really have no idea what the market is going to do.  Many analysts earn a living by projecting future market fluctuations when in reality they are no better at predicting the future than you or me.  Peter Lynch sums it up perfectly with the following quote – “More money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”

Keep Your Emotions in Check. The stock market is volatile and there will be years with negative returns.   Limit investment in the stock market to money you won’t need for several years.  Have patience and stay the course.  As experienced after the 2008 correction, the market will eventually rebound.  Don’t succumb to media hype and fear tactics claiming things are different this time. There have always been, and always will be, major events that trigger dramatic fluctuations in the stock market.  Don’t panic this will pass.  Sir John Templeton once said, “The four most dangerous words in investing are: “This Time is Different!”

Be tax smart but don’t let taxes drive your portfolio.  Where possible maximize the use of tax advantaged retirement vehicles such as 401k plans and Roth IRAs.  Place investments with the greatest opportunity for long term growth in tax deferred or tax free retirement accounts.   Save taxes where it makes sense but don’t intentionally sacrifice return just to save a few dollars in taxes.