Retirement Planning
August 10, 2023

Long-Term Care Planning

It’s important to plan for your healthcare needs in retirement, but it’s equally important to do so from a position of strategy rather than anxiety. Stewart explains how fear-based long-term care planning can cost you in this week’s blog.
Stewart Willis

If you ask the average person on the street what worries them most about getting older, they’ll often say their health. It’s expected that as we age, our health issues will increase. That’s bad enough from a physical perspective, but it’s also troubling from a financial one.

Health care is expensive. Even younger people who have few, if any, medical issues or doctor visits spend — or their employer spends on their behalf — thousands of dollars per year just on health insurance. In 2022, the average employer spent $10,500 per employee for health insurance coverage, with the average worker kicking in $2,500 more.

Once in retirement, those costs can grow considerably. Medication is expensive, as are more frequent doctor and hospital visits. Proper planning to absorb these increased costs is vital. It requires a carefully-considered, structured approach, especially since it’s impossible to predict what, if any, medical conditions you might have decades from now.

It’s extremely important to recognize that healthcare costs have gone through the roof. While there are signs the nation has reached a tipping point when it comes to healthcare affordability, it would be unwise to assume the problem will be solved by the time you retire and your medical needs increase. Assume you’re going to have medical expenses, and build that assumption into your retirement plan.

It’s also crucial not to be drawn in by fear-mongering sales pitches. Clients regularly ask me if they should get long-term care insurance. It might surprise you that I often advise them to stay away from it! In my experience, people don’t buy long-term care insurance; they’re sold it. I view it as a “fear” sale— you’re afraid of going broke if you become debilitated in your old age.

It’s important to understand what long-term care insurance covers and, more importantly, what it doesn’t. This insurance will cover nursing home stays, which on the surface sounds like a wise purchase. But statistically, only 2.4% of the elderly population ends up living in a nursing home. If you expand that statistic to include assisted living facilities, an additional 2% will potentially use long-term care.

If every one of the 55.8 million elderly people in the country had long-term care insurance, the vast majority of them would represent pure profit to the insurance company. And what a profit it is! With policies often costing thousands per year, if you don’t need to use it, that’s quite a lot of money you’ve given to the insurance company for no return. That’s a wonderful result for them, but unless you beat the odds, it’s not such a great deal for you.

Planning for your healthcare needs in retirement is a complicated process and one that’s top-of-mind for many of our clients at Asset Preservation Wealth &Tax. As is the case with most retirement planning, it shouldn’t be done alone. Be sure you have a seasoned expert on your team to help you navigate the complexities of preparing for medical expenses in your golden years.

Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.


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