Long-term care should be a big part of your financial planning.
But most people don't like to think about being old and incapable of going to the bathroom on their own. Plus no one really understands the costs associated with long-term care - we've all just heard that it's really expensive.
All that is enough to put the conversation to bed.
What we do know is that we are living longer, and the cost of care goes up faster than Donald Trump's tweets.
So let's start a dialogue and help get you comfortable with the topic. Here are ten questions you should be asking about long-term care.
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Worried about how to pay for your golden years? Ken Fisher, founder of Fisher Investments, and TheStreet's Jim Cramer will tell you what you need to know in a June 21 webinar on the market trends that are shaping retirement planning today. Register here for the event, which starts at 11 a.m. ET.
1. What Exactly is Long-Term Care?
Long-term care (LTC) is any care you will need as you age or happen to get sick. It can be anything from someone coming to your home to help you with daily tasks to more specialized situations like assisted living or a nursing home, says Scott Olson, an LTC insurance specialist and founder of LTCShop.com.
And care doesn't always have to be medical. It also can be as mundane as needing help bathing, dressing or even getting in and out of bed.
Receiving care does not mean you have to leave your house. "Over 15 million people are receiving some type of care and most of it is at home - not just at nursing home," says Olson.
2. Who Needs Care?
You don't have to be old to need care. Say, for example, someone develops multiple sclerosis, has arthritis or suffers a stroke -- there can be a need for assistance at any age.
But about 70% of population will need some type of care as we age, according to the Centers for Medicare and Medicaid Services.
"The U.S. Census Bureau predicts that over one-fifth of the population will be over 65 by 2040, up from 14% in 2012," says Samuel Bodily, professor at the University of Virginia's Darden School of Business, in a recent research report on long-term care.
And while we all are living longer, women, in particular, will need extra help since they often outlive their partners.
3. How Much Does This Kind of LTC Cost?
Brace yourself, because it easily could be $10,000 a month depending on where you live and whether you have a caregiver come to your home or you live in a nursing home.
These costs vary state-to-state, and there are plenty of calculators out there to help you figure it out. Here is a cost of care calculator from Genworth (GNW) and one from John Hancock (JHI) to give you an idea of what it will cost in your state.
But to give you a ballpark, the national median for a health aide to come to your home is about $4,000 a month and a private room in a nursing home will run you $8,000 a month, according to Genworth.
4. Does Medicare Cover It?
Nope. Nor does your regular health insurance. (What does health insurance cover these days?)
But Medicaid does. "And at least half the people that use long-term care have it covered through Medicaid," says Olson.
And while you may be thinking that you will just spend down your life savings or move everything out of your accounts to qualify for Medicaid later on, beware that there is a five-year lookback. That means Medicaid can question your motives five years prior to your claim.
So if you had $5 million in your account three years ago and now you have $50,000, you better prove you lost it all in Vegas on a bad bet or you're out.
5. So How Much Does LTC Insurance Cost? (Gulp.)
Depending on your age, health and marital status, LTC insurance premiums will probably run you at least $200 a month.
Interestingly, $1,500 per year in premiums has become an unwritten inflection point, where consumers often decide anything over that is just too much on their monthly budget.
There are a bunch of variables that go into that monthly premium but it basically comes down to how much money you think you'll need daily for care and how long you want to receive those payments.
So to give you a guideline, I asked Olson for a personal quote. I'm a healthy, 46-year-old single woman. To get coverage of $100,000 a year for five years, it would cost me $200 a month.
But, let's presume, God willing, I don't need this money until I'm at least 80. That's around $82,000 in payments, for coverage I may not need it at all. (Remember, that's why I had kids.)
6. How Is It Paid Out?
Much like your regular insurance, there is a sort of "deductible," which basically creates the following scenario: you may need coverage, but the payments usually won't kick in right away. Depending on the plan, you may have to wait a month or two -- some policies even make you wait up to 200 days -- before the money starts coming in.
So make sure you read the fine print and understand what all the nuances of the different plans when you start researching all this.
7. So Do I Really Need It?
"Everyone should have a long-term care plan -- whether that includes insurance or not - you should know which assets you're going to use if you need them," says Nelson Rivera, director of insurance services at Clarfeld Financial Advisors in Tarrytown, NY.
But if you are disciplined enough to save the money yourself, then you may not want to pay for long-term care insurance.
And if your estate is over $5 million, you probably can self-insure.
Granted, there are tax implications of liquidating assets, so in some cases, the insurance can help.
And while there are a lot of variables to consider here -- e.g. how much you already have saved, your risk tolerance, what you think LTC costs will be when you're ready to use it -- for the most part, most people do not need it.
"While there may be situations in which LTC insurance is the optimal choice (younger individuals with low risk tolerance and low retirement savings), the optimal choice in most situations is to have the discipline to put away money in retirement investments in lieu of LTC insurance premiums," says Bodily in his report, which concluded that saving on your own is better. Mostly because your money appreciates with the market, and if you don't use it, you can pass it on to the next generation.
8. Consider a Roth IRA Instead
"All things being considered, you are probably better off putting an amount equivalent to that monthly premium payment into a Roth IRA," suggests Bodily.
There are no minimum required distributions while you're alive, and once you're 70.5 and your money has been in the account for at least five years, your Roth IRA withdrawals are tax-free. The Roth is the last thing you touch when using up your assets in retirement, so the money will be there for you if you need.
"This becomes a two-generation moral hazard," says Bodily. "So maybe [using a Roth] can help align parents' and kids' interests."
Maybe so. Maybe then Junior actually will consider taking in Mom instead of dropping her off in a nursing home and wasting his inheritance.
And there are other options. "There are also life insurance policies that have LTC riders that cost few hundred dollars a year," says Rivera.
Then if you don't use the rider, you're not out-of-pocket nearly as much as you would be if you bought the insurance. (For instance, check out Lincoln National's (LNC) product here).
So talk to your advisor and explore all your options.
9. LTC Premiums Have Been Going Up Though -- Why?
In short, a bunch of insurance companies got screwed when they grossly underestimated the amount of money they were going to have to pay out in care.
Genworth Financial was the biggest culprit. Larger-than-expected claims coupled with low interest rates that killed its investment earnings caused the company to jack up premiums. (Genworth was recently acquired by China Oceanwide Holdings for $2.7 billion, because it couldn't save itself).
But Genworth was not alone.
"The same thing happened to many companies and as a result a bunch have left the industry," says Rivera.
All that caused premium prices to increase and, unfortunately, the level of benefits to decrease.
10. So What's the Future of LTC Look Like?
"We're pessimistic about what the future holds - in terms of what the insurance companies are offering," says Rivera. "We feel because we are being squeezed out, we have to look at other options."
Granted, there definitely are times when LTC insurance is appropriate - and it does work when it needs to.
But the future is sketchy, so be sure to start having these conversations. Get a plan in place. It's important.
You want to enjoy your golden years, not worry about who's going to get you to the toilet.