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Grace YungThe cost of caring for an aging family member
by Grace S. Yung, CFP

As the U.S. population continues to age, and overall longevity increases, the issue of long-term care insurance has remained front and center in terms of the impact it can have—both for those needing care and those who offer informal caregiving to a loved one.

Caregiving is usually defined as “unpaid assistance that is provided by family members, friends, and neighbors, in order to help ill and disabled individuals remain in the community.” Factors such as the changing nature of the family, as well as increased life expectancies, have significantly influenced the nature and the extent of caregiving today.

The True Cost of Giving Care

It may seem surprising that most long-term care for older adults is actually not provided in nursing homes, but rather on a more informal basis in private homes or other community-based settings.

Unfortunately, while most people would not hesitate to offer care for an aging partner, this arrangement often comes at a very high cost. Due to the physical and emotional strain that caregiving can entail, caregivers who are employed in addition to providing care to a loved one are more likely to have their own health negatively affected. Given their added responsibilities, caregivers typically have less time to exercise and get sufficient rest.

The financial cost of caregiving, while somewhat different depending on gender, is quite staggering. For example, according to the Met Life Study of Caregiving Costs to Working Caregivers, men who leave the workforce early or reduce their working hours in order to provide care for a loved one lose an average of more than $89,000 in cumulative wages. When also considering a man’s reduced Social Security retirement benefits due to his decreased wages, the total loss can be in excess of $144,600.

For female caregivers, the financial cost is even more substantial. In one scenario, a loss of wages of nearly $142,700 is coupled with lost Social Security benefits of approximately $131,351 and a $50,000 impact on pension/retirement savings to bring the average lifetime cost of providing care to around $324,000.

Sources for Financing Long-Term Care Needs

While providing care to a loved one can take its toll on future income and savings, current savings are also depleted relatively quickly if other sources of financing are not in place.

Contrary to popular belief, government sources such as Medicare and Medicaid provide very few reimbursements to cover long-term caregiving. For example, in order to qualify for limited Medicare funds, an individual must be considered “home bound,” while Medicaid typically requires that an individual’s assets be at his or her state’s poverty level. (This differs from state to state, but is generally in the range of $2,000 in total assets.)

There are, however, ways to plan for long-term care needs that can lessen both the physical and financial impact that a caregiving situation can bring about.

Long-Term Care Insurance

One option is to purchase long-term care insurance. Today’s long-term care insurance policies cover myriad expenses, including a number of home-care options. This can allow a partner who needs care to receive the services that he or she needs, while the other partner continues to earn income and retain savings and assets for their originally intended purpose.

Likewise, many current long-term care insurance policies will allocate a certain amount of benefit to cover expenses that the caregiver incurs—even if that individual is a friend or family member. (Older policies often provide benefits only when trained medical professionals provide the care.)

In addition, long-term care insurance benefits can be increased over time by opting for the inflation rider. This can help a great deal in covering the rising cost of medical care—and it can be particularly beneficial for younger applicants who may not need to file a claim for several decades.

Many of today’s long-term care insurance policies also offer premium discounts to domestic partners who both apply for coverage at the same time. This can help keep the overall cost of coverage down, while ensuring that money will be available should the need for care arise.

Fixed Annuity or Life Insurance

with a Long-Term Care Rider

In addition to individual long-term care insurance policies, there are also “hybrid” plans offering a combination of benefits. For example, a combination annuity and long-term care insurance plan can consist of either an immediate or a fixed annuity that has a long-term care rider attached.

These plans allow the gain in the annuity contract—funds that would otherwise be considered taxable income—to be paid out as a tax-free long-term care benefit. In addition, the annuity holder can retain the increases in account value in the fixed annuity if these funds are not all used for long-term care needs.

These plans can offer a great way for someone who may not otherwise qualify medically for a stand-alone long-term care policy to obtain coverage. And, if the long-term care benefits are not needed, the policyholder still retains those benefits from the fixed annuity.

Combination life insurance and long-term care policies are also gaining more popularity. With these plans, a policyholder may be able to make one lump-sum deposit into the plan, and a certain multiple of those dollars can then be used for long-term care expenses, life insurance coverage, or a combination of both.

These linked-benefit plans can also allow one to leverage two benefits in a single policy. And, given that the plan was funded with just a single lump-sum premium, the policy is considered paid in full—and, therefore, there is no risk that premium payments will go up in the future.

Even if the policyholder never uses the long-term care benefits, their loved ones can still benefit from the life insurance proceeds. It is important to note, though, that a medical exam is still required in order to qualify for this type of plan. In addition, depending on the plan, the long-term care benefits may need to be received in a skilled-care facility.

In any case, it may be a good idea to review existing life insurance coverage and/or fixed annuity policies in order to determine whether a hybrid plan that also offers long-term care benefits would be more beneficial. In certain cases, individuals might be eligible for a Section 1035 tax-free policy conversion to a new plan that provides more appropriate benefits.

The Bottom Line

In any type of long-term care planning situation, it is essential to discuss your needs with a qualified professional who is well versed in providing tax and financial solutions for those who are approaching retirement, and specifically to individuals and couples in the LGBT community who may have unique planning needs.

Grace S. Yung, CFP, is a certified financial planner practitioner with experience in helping domestic partners plan their finances since 1994. She is a principal at Midtown Financial LLC in Houston.

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See other MoneySmart columns:

After the DOMA Ruling (September 2013)
Couples still need to watch for potential land mines.

Saying Goodbye to DOMA (August 2013 OutSmart)
What it really means.

Critical Illness Insurance (July 2013 OutSmart)
Filling in the gaps.

Implementation of Obamacare (June 2013 OutSmart)
How LGBTs can prepare.

The Aging Population (May 2013 OutSmart)
How LGBTs folks can prepare for living longer.

Staying on Top of the Fiscal Cliff (April 2013 OutSmart)
How to maximize your investments, even if your paycheck is smaller

Finding the Funds …to make your IRA contribution (March 2013 OutSmart)

Have You Made Your 2012 IRA Contribution Yet? (February 2013 OutSmart)
There is still time!

What’s Different for 2013? (January 2013 OutSmart)
Considerations for Texas and your future investments.

LGBT Partners… (December 2012 OutSmart)
Working around the denial of your government benefits

Future Tax Rules Can Further Penalize LGBT Investors (November 2012 OutSmart)
But there is still time to act

Protecting your Wallet and your Heart (October 2012 OutSmart)
How and when to keep assets separate—even when you’re madly in love

Domestic Partner Tax Deductions in Home Ownership (September 2012 OutSmart)
With today’s historically low interest rates, it’s certainly a great time to either purchase or refinance a home.

Dying Intestate (August 2012 OutSmart)
Could you be leaving the state in charge of distributing your assets?

Protecting the Things that Matter (July 2012  OutSmart)
How those in the LGBT community can use life insurance planning strategies

When ‘I Do’ Becomes ‘I Don’t Anymore’ (June 2012 OutSmart) 
Ensuring both partners’ fair share with a Domestic Partnership Agreement

Retirement (May 2012 OutSmart)
Using annuities can provide lasting income for both domestic partners: When depending on a partner’s retirement income, annuities can offer the perfect solution

Financial and Tax Planning Issues for Domestic Partners (April 2012 OutSmart)
Is Uncle Sam getting a bigger chunk of your income and wealth?

The Real Cost of Long-term Care (February 2012 OutSmart)
How LGBT caregivers are paying the price

Gay Money Matters (part 1) (February 2010 OutSmart)
Domestic Partners: Estate and Tax Planning

Gay Money Matters (part 2) (February 2010 OutSmart)
Protecting your assets . . . even when the rules don’t

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Grace S. Yung

Grace S. Yung, CFP, is a certified financial planner practitioner with experience in helping domestic partners plan their finances since 1994. She is a principal at Midtown Financial LLC in Houston and was recognized as a “Five-Star Wealth Manager” in the September 2017 issue of Texas Monthly.
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