Long-term Care: The Biggest Decision

by: Gunner DeLay


When it comes to retirement planning, most people only think about their golden years. These are the years when they have time to travel, spend more time with family, and enjoy leisurely activities.

Meanwhile, little thought is given to the last decade of life. That period is when one’s health starts to fail, dependence on adult children is required and assisted living or long-term care can become a reality.

Planning for this phase of retirement is critical. It not only determines one’s quality of life in the twilight years, it also affects the type of financial legacy, if any, a person leaves their loved ones. In short, it may be the biggest decision most people never make.

We all know old age is unavoidable. Yet, we manage to avoid the harsh reality we may one day have to enter a nursing home. More importantly, we fail to weigh the financial impact that situation would have on our spouse and our ability to pass along an inheritance to our children. For that reason, seniors, and children of seniors should consider the pertinent facts about long-term care.

Statistics According to the Association of Long Term Care Insurance, at age 65 the probability of becoming disabled in at least two or more activities of daily living, or becoming cognitively impaired, is 68%. Of that age group, 35% will eventually enter a nursing home. Once someone enters a nursing home, there is a 30.3% chance their stay will last between one and three years. In Arkansas, the average monthly cost of a nursing home is $5380. That means that an eighteen (18) month stay would cost approximately $96,840.

For most families, the financial strain of a prolonged stay in a nursing home would result in a reduced standard of living for a spouse. At a minimum, it would mean a sizable reduction in the assets needed for the spouse to survive as a single person. Besides impacting the spouse, it could mean that most of one’s lifetime savings are spent at the nursing home instead of going to loved ones after both partners have passed away.

Options Since there is a high probability most couples will need some type of long-term care (LTC) during their lifetime, it makes sense to plan for that contingency.

  • Option 1: If planning starts early enough, they could obtain long-term care insurance that will pay most, if not all, nursing home expenses. Policies for women are generally less expensive than policies for men. Note, these policies can be cost prohibitive if people wait too late to consider this option.
  • Option 2: They could use the long-term care riders of annuities, or the cash value of a life insurance policy to pay LTC expenses. These annuities double or triple their payout if the annuitant cannot perform two or more activities of daily living. If life insurance cash value is used, the policyholder can borrow cash out of the policy, which will be deducted from the death benefit.
  • Option 3: They could use their income and accumulated savings to pay for LTC. This option may be the least attractive if a family has limited means.
  • Option 4: They could consult an elder law attorney who can explain how assets can be gifted, transferred, and shielded in such a way that a person can qualify for Medicaid benefits in order to pay LTC expenses.

If Option 4 is your best option, don’t forget the “five-year look back” rule. It is the period that Medicaid uses to determine whether an asset has effectively been gifted to another person. Although it is possible for an elder law attorney to successfully shield a family’s assets in a crisis situation, the best plan is to consult with him or her before that situation arises so the clock can start ticking.

By Gunner DeLay

Gunner DeLay, Cambridge Wealth Management, LLC. and Elder Law. 479-479-783-0467 gdelay@cambridgefg.com