We Need to Talk About a Difficult Topic

70% of Us Would End Up Using This Kind of Insurance

If you do not wish to contemplate your own mortality, please turn away now. This might get ugly… 

An email recently dropped into my inbox from the Center for Retirement Research at Boston College, and the very first question it asked was: How much long-term care will retirees need? 

Based on research the Center conducted, 30% of 65- to 70-year-olds in self-reported good health won’t need long-term care. That’s the good news. 

Which, of course, defines the bad news: 70% will need some level of long-term care (18% will have severe needs…and if you’re already in bad health at 65-70, the probability of severe needs nearly doubles to 32%).  

But the meat of that report came in the conclusion, when the author noted this:  

The big question is whether those who need help will have the resources available either in terms of family or friends to receive informal support or sufficient finances to pay for formal support. 

That is a huge question, given that long-term care costs easily run into the multi-thousands of dollars per month. 

I started thinking about all of this in the mid-’90s, when I was a financial writer at The Wall Street Journal, writing reports on long-term care topics. I was initially drawn to the subject because, as you know, I grew up with grandparents, so I saw the aging and retiring processes as up-close-and-personal as one can get. 

I saw the costs involved. I saw the Medicaid-qualified nursing homes my grandparents ended up in. I saw the private nursing home my granny wanted to go to but could in no way possibly afford, since it cost more than $6,000 per month. 

Because of all that knowledge, I walked into a New York Life office in Baton Rouge, Louisiana, where I was living at the time, and invested in a long-term care insurance policy. That was 14 years ago. I was barely over the age of 41. 

I was a babe in the woods shopping for coverage at such a relatively tender age. Most policies go to people in their 50s and 60s, when policy prices are often substantially higher. Then again, I saw this as an investment in the tomorrow I want to live, in the event that a tomorrow I don’t want actually arises. 

In short, I want healthcare options. 

Traditional health insurance and Medicare do no pay long-term care costs. Medicaid will pay nursing-home costs—but only after you spend yourself into poverty, which I find a barbaric way of looking at end-of-life issues. 

If I want to receive care at home, or if I want to move into an assisted-living facility or a posh nursing home, I won’t need to drain my life savings or chose mediocre care that fits my finances. I will have a large pot of cash to draw upon because of my long-term care coverage. 

My policy comes with an automatic 5% compounding feature that lasts the life of the policy. So every year, the daily benefit I’m eligible to receive compounds by 5%. I started off with a benefit of $125 per day (the most the policy will pay out to cover my long-term care costs). That has grown to $247 today (more than $7,400 per month), and will hit $1,070 per day by the time I’m 85. That’s more than $32,000 a month for me to pay whatever long-term care costs I have. 

Even in the U.S., that should go a long way. 

But given that I aim to retiree overseas (and given that my policy pays out even if I live abroad), I am quite certain that a pot of $32,000 a month to draw upon will go a long, long way outside the U.S. 

For all of that, I’m paying $1,384 a year—$115 a month—for what is truly Cadillac coverage at a firm in which I have 100% faith, given its long, 176-year history.  

I won’t got into policy details since you likely can’t replicate my coverage at that price today. But I will tell you this: Always—always!—buy long-term care coverage from a financially robust insurance company. I would rather own inferior coverage from a great insurer, that great coverage from an inferior insurer. 

I will also tell you this: Even if you’re in your 50s or early 60s, you can find some kind of affordable long-term care policy to provide at least a modicum of coverage when you need it. And if you were to pair such a policy with the idea of retiring overseas, you could opt for a smaller daily benefit rate, since your healthcare costs abroad will be radically less. That means you’d be able to afford a lower-cost policy that offers fantastic coverage, relative to where you want to live. 

To me, it’s just one of the ways to think about structuring a richer life in retirement as the cost of retiring in the U.S. continues to explode higher.