Tag Archives: Health Care Costs

Understanding the Ever-Growing Costs of Long-Term Care

Understanding the Ever-Growing Costs of Long-Term Care

There are few life expenses that are rising as briskly as the cost associated with health care. Of all health care costs, long-term care (LTC) cost seems to be rising the fastest. For example, the average increase in cost associated with a U.S. nursing home bed has risen about 4.5% per year over the last five years. The median cost of a nursing home bed has increased 5.1% just from 2009 to 2010. Many wonder why LTC costs are rising so rapidly and if there’s any hope for it to level off in the future.

Why LTC Cost Is Rising

A large portion of the general population is aging and aging longer. The average life expectancy has steadily increased over the last three or four decades because of advancements to the sophistication and scope of medical care and treatment. Medical advancement doesn’t come without cost, and as the population ages, advancement costs in the field of medicine are passed along to patients. Another point is that increased life expectancy typically results in an increased duration and level of custodial care for the aged person.

Some research has shown that 80% of lifetime medical expenditures are used during the last 20 years of life.

Medical conditions, diseases, and illnesses that once ended in certain death are now treatable and manageable, but often leave the patient requiring advanced or long-term medical care. For example, advancements in stroke care have resulted in a higher probability of survival, but a stroke is now one of the leading causes of disability in the United States. A stroke patient may need custodial care to help or perform activities of daily living such as bathing, dressing, eating, grooming, and transferring from one position to another. Even after physical, occupational, and speech therapy, many stoke patients still require semi-skilled to unskilled care to accomplish daily activities.

Another aspect of LTC cost comes from the salary expectations of LTC workers rising faster than inflation. The education and skill level for health care workers has congruently increased alongside the advancements in medical technology and the health care field as a whole. Jobs, like a nursing home aide, that were once only considered a stepping stone to a different medical career path are now a permanent career choice and being monetarily compensated accordingly.

The bottom line is that demographics can’t be changed. Therefore, LTC costs will definitively continue to rise.

The Future of LTC Costs

After understanding why LTC costs are rising and will continue to rise, the next question for most is if there’s anything that can be done to manage the cost of LTC?

First of all, custodial care should be delivered in the most cost-effective environment available. Some tips would include preventative health care and taking good care of oneself during active years, which can postpone and reduce the future need for LTC services; opting for home health care or an assisted living facility vs. a nursing home; and caregivers utilizing adult day care centers for aged parents or grandparents, which still allows the caregiver to work during the day and care for their loved one at night.

Secondly, consider LTC insurance to help manage future LTC expenses and monetary burdens. A LTC insurance policy can be one of the best and most viable solutions to contain LTC cost on an individual level. Most comprehensive LTC insurance policies will generally cover home care, adult daycare, hospice, respite care, assisted living, and so forth that isn’t covered under Medicaid, Medicare, or a private health insurance policy. With LTC insurance, future LTC out-of-pocket expenses are in a manageable range for the policy holder.

Time to Split: Squelch Retirement Worries with a Split-Annuity

Time to Split: Squelch Retirement Worries with a Split-Annuity

Recent research shows that U.S. workers are growing increasingly apprehensive about their ability to fund a comfortable retirement. Only 18% of surveyed workers said they are very confident about having enough money for a comfy retirement, according to the Employee Benefit Research Institute’s 2008 Retirement Confidence Survey.

That means that more than 80% of workers are not certain that they have enough retirement savings. Of course, in the face of skyrocketing health-care costs and burgeoning inflation, it’s really no wonder why workers are so concerned. If you’re worried that you may not have enough income to last a lifetime, you may want to consider a split-annuity strategy. This tactic may allow you to start receiving a steady stream of income now that could continue well into your retirement years.

How to make the split

It’s fairly simple to pull off a split-annuity strategy. All you have to do is divide a lump-sum contribution between an immediate fixed annuity and a deferred fixed annuity. An annuity is a contract between you and an insurance company. You pay the insurance company either a lump sum or a series of payments in exchange for the promise that the company will offer you a stream of income in the future. This allows your money to grow over a specified period of time in a relatively low-risk environment.

The split-annuity strategy is an effective approach for those who need income now and well into the future. That’s because the immediate annuity starts paying you income right away for a specific period of time while the deferred annuity continues to accumulate interest-which will provide you more income in the future.

A case study

Let’s say a man named Bob splits a $500,000 lump sum between an immediate annuity and a deferred annuity-that’s $250,000 in each account. Bob chooses an immediate annuity contract that guarantees a 4% annual rate of return, allowing him to receive an annual payout of $35,000 for the next eight years.

In the meantime, Bob’s $250,000 in the deferred annuity is also earning a 4% annual return on a tax-deferred basis. After eight years, Bob’s immediate annuity has been drained, so he turns to the deferred annuity-which has grown to more than $342,000. Bob can now start collecting income from the deferred annuity.

Important annuity facts

Before you tap into this split-annuity strategy, it’s important to understand all the ins and outs of annuities. Here are a few things you’ll want to keep in mind:

  • Beneficiaries: If you have a deferred annuity and die during the accumulation phase (the time before the payouts begin), your designated beneficiary will collect the principal in addition to any interest that has accumulated. This is why it’s extremely important to designate a beneficiary in your annuity contract.
  • Surrender charges: Although there are some surrender charges associated with withdrawing money from deferred annuities, these charges typically decrease over time. After a certain amount of time, surrender charges will no longer apply.
  • Taxes: Annuity earnings are taxed as ordinary income. Also, if you make any withdrawals before the age of 59ВЅ, you may be subject to a 10% federal income tax penalty.

If you are concerned about having enough income to fund a comfortable retirement, ask your financial advisor about a split-annuity strategy. This effective line of attack may allow you to start collecting income right now and ensure you’ll have enough income well into the future.

* Annuity withdrawals are generally taxed as ordinary income and may be subject to surrender charges, in addition to a 10% federal income tax penalty if made prior to age 59 1/2. The guarantees and payments of income are contingent on the claims paying ability of the issuing insurance carrier.