How to Prepare Yourself and Your Family for Long-Term Care

I live in Arizona, and during monsoon season, we know what a black cloud looks like.

You can see it building in the distance. The sky gets darker. The temperature changes. The wind starts to pick up. Even though nothing has happened yet, you worry about it.

Is it going to rain? How bad will it be? Will there be hail? High winds? A dust storm? Is it even going to hit us — or will it pass by?

The other day, the clouds were dark enough that I called my 17-year-old daughter and told her to be careful driving. There wasn't a storm at our house yet, but I knew there was enough risk that it was worth thinking ahead.

Those clouds are a good metaphor for how I look at long-term care: It's the black cloud of retirement planning.

You know the cloud is out there

Most people approaching retirement understand they might need some form of long-term care. What they don't know is what it will look like. They're likely asking themselves:

• Will I need long-term care at all?
• When will I need it?
• Will my spouse be able to take care of me?
• Will I need a little help at home or full-time care?
• Will I need help for six months or six years?
• How much might that care cost?
• What happens financially to my spouse if I'm the one who needs care?

That's a lot of uncertainty hanging over a retirement plan, which makes long-term care so uncomfortable to discuss.

• We can estimate how much income someone will need in retirement
• We can model Social Security
• We can build an investment portfolio
• We can discuss taxes and estate planning

But long-term care is different.

We don't know if or when the storm is coming, how long it will last or how severe it will be.

That's why we should plan for it.

The storm isn't just about money

When people hear "long-term care planning," they often think about the financial hit. But that's not always the biggest risk.

Long-term care can become a family issue before it becomes a financial problem.

Someone must coordinate doctors, medications, transportation and care facilities. A spouse might become the primary caregiver. Adult children might begin rearranging work schedules and family responsibilities. Families are often forced to make difficult decisions when they're already feeling stressed.

There's also the potentially substantial cost.

Imagine a married couple who have spent 30 or 40 years saving for retirement. They've built a nest egg that's meant to provide income for two people. They have travel plans. They want to help their grandchildren. Maybe they want to leave something to their children.

Then one spouse needs significant care.

Suddenly, the same pool of assets has two jobs. It must provide for the healthy spouse's retirement while simultaneously paying for the other spouse's care expenses.

That's why I believe the long-term care planning conversation should start with people, not products.

What would you want to happen?

Before discussing insurance and other options, I like the idea of asking some basic questions:

• If you needed care, where would you want to receive it?
• Would you prefer to remain at home as long as possible?
• Who would you expect to help you?
• What assets would you be comfortable spending?
• How important is preserving assets for your spouse?
• How important is leaving an inheritance?

These questions change the conversation. The plan comes first. The product comes second.

There are several ways to prepare for the storm

There isn't one long-term care strategy that will work for everyone. Generally, families have at least a few options, including:

1. Self-funding

Some people have accumulated enough wealth to comfortably pay for care from their own assets, and that's a perfectly legitimate strategy.

But self-funding should be a strategy, not an assumption. It should include modeling what happens if one spouse requires significant care for several years.

• From where would the money come?
• Which assets would be tapped?
• What happens to the surviving spouse's income?
• Does the rest of the retirement plan still work?

2. Traditional long-term care insurance

Traditional long-term care insurance allows someone to transfer a portion of the risk to an insurance company. In the right situation, it can provide significant leverage and help protect other retirement assets.

But the tradeoffs include ongoing (usually high) premiums and the possibility of premium increases, not to mention the discomfort some people have with paying for something they might never use.

3. Hybrid or asset-based strategies

Another option is a hybrid or asset-based strategy — usually a life insurance policy or annuity that includes long-term care benefits.

The money that goes into this strategy can serve multiple purposes. If long-term care is needed, those benefits are available. If it isn't needed, the death benefit or other value remains.

This can make the decision more acceptable for someone who dislikes the idea of "use it or lose it" insurance.

4. Combining strategies

Planning doesn't have to be all or nothing.

A family might choose to insure against part of the risk while retaining enough assets to cover the rest.

That's often how we handle other risks in life. We decide how much risk we're comfortable shouldering and how much we want to transfer to auto, home, health or other insurance policies.

Doing nothing is still a decision

You could decide to do nothing and figure it out as you go. That's the long-term care strategy many families have by default.

Maybe a spouse provides the care. Maybe the children step in. Maybe assets are spent down. Eventually, Medicaid might become part of the conversation for some families.

But there's an important distinction between intentionally choosing to retain a risk and ignoring it: The default plan might give you fewer choices when you need choices the most.

Plan while the sky is still clear

Having a strategy in place can help you feel more prepared and might reduce the urge to constantly watch the sky.

That's one of the primary goals of a good retirement plan: It can help provide confidence in the face of uncertainty.

Planning earlier might give you time to evaluate your financial resources, your family situation and the various ways you could handle the risk.

You don't necessarily have to purchase something. But you should have the conversation.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

Related Content

• How to Pay for Long-Term Care
• Long-Term Care Insurance: 10 Things You Should Know
• What You Need to Know About Long-Term Care Before You Need It
• A Financial Professional's Take on Long-Term Care Insurance: Buy or Not?
• If Not Long-Term Care Insurance, Then What?

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.