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Long Term Care: a Curveball in Retirement

Written By Gary S. Williams, CFP®, CRPC®, AIF® and Nicholas A. Ibello, CFP®, AIF® February 27, 2019

Playing with grandkids, travelling, sitting back “without a care in the world” or volunteering for a local charitable organization. These are just a few ways to visualize your retirement years.  Nobody wants to think about anything less than the ideal, healthy, fulfilling retirement years.

retirement longterm health care

For others, however, some retirement years are spent living in a nursing home or long-term care facility.  Long-term care (LTC) refers to a broad range of physical, mental, social and personal services for people who have lost the ability to function independently as their physical or mental state declines. Unfortunately, according to The U.S. Department of Health and Human Services, seventy percent of individuals over age 65 may need some type of LTC in their lifetimes.  In other words, there is a good chance you may need home care or may spend some time living in a long-term care facility. 

As financial advisors, our job is to look at probabilities and the potential costs to determine the proper way to plan for the future. If we base our planning on the seventy percent chance of needing care and factor in MetLife’s Market Survey of Nursing Home and Home Care Costs estimate’s that the total cost of a LTC need can easily approach or exceed $200,000 (in today’s dollars), it becomes clear that the financial impact of long-term care can be devastating.

Some options to consider include insurance which involves transferring some or all of the risk to an insurance company, self-insuring or accepting the risk, or a combination of both.  In some situations, due to limited financial means, relying on the government may be the only option.

Long Term Care Insurance (LTCI)

LTC policies are a form of private-pay insurance, so they allow you to retain increased flexibility in choosing care facilities and specific care needs. They are generally structured to pay a certain dollar amount per day, for a set period of time, for custodial care in the home or a licensed facility. Costs of LTC policies vary widely based on factors such as age, health rating, coverage options, and riders. Expect average costs (for an individual policy) to be in the $2,000 – $5,000 range. Keep in mind premiums are not fixed; they could increase.

Linked-Benefit Policies (also called Hybrid LTC Policies)

As the cost of traditional LTCI has dramatically increased, linked-benefit and life insurance policies with riders that allow access to the death benefit while alive have gained a lot of attention as alternative strategies. A linked-benefit policy is typically structured as a single-premium life insurance policy (some offer multi-pay options) that provides long-term care benefits — as well as a tax-free death benefit in the event LTC isn’t needed. In other words, the policy can provide tax-free benefits for either death or a LTC event – whichever is sooner.


Using personal savings to pay for LTC is an option as well. Certainly, self-funding – as long as it’s sufficient – provides for freedom of choice as to where and how care will be obtained. However, the risks of self-funding long-term care costs, even the most affluent individuals, are not insignificant. Therefore, if you choose this option, you must accept the substantial economic risk of LTC which includes potentially spending down assets that otherwise would have been a financial legacy or using assets that a spouse that doesn’t require LTC will need for their retirement.  In other words, this decision could have severe financial consequences that must be carefully considered.


Medicaid is a program designed to help those who are impoverished. In order to qualify for assistance through Medicaid, the applicant must “spend down” practically all of his or her own assets before Medicaid will begin to pick up the tab. If a person has reasonable income and assets, they will most likely pay for care out-of-pocket until their assets have been significantly diminished. Generally speaking, to qualify for Medicaid (besides hitting certain income/asset thresholds), you must be age 65 or older, permanently disabled or blind; and meet U.S. citizenship or immigration rules as well as be a resident of the state where they apply.

In closing, LTC represents one of the most significant costs that can impact retirees. It is essential that this be planned for proactively, not reactively, in an attempt to preserve your financial choices and your family’s financial security. As always, with any important financial decision in your life, please discuss your unique situation with your financial advisor to determine which option is right for you and your family.

Let the Certified Financial Planner™ professionals at Williams Asset Management help with your wealth management needs. Whether you need comprehensive and holistic financial planning or investment management, we can help!  We are fee-based, independent financial advisors located in Columbia, the heart of Howard County, Maryland.  Schedule your complimentary consultation today by calling (410) 740-0220!