Q. I'd like your opinion for sheltering our money. I'm 67 and my wife is 62. I retired at 55. She retired at 50. We both have pensions that are adequate. I'm collecting Social Security. Our IRA's total $875,000 and we have yet to withdraw any money from them. In both local and high interest checking, we have another $300,000 in savings. We paid cash for our house and our cars are leased. I think we're in good shape.
Recently, my wife had to put her parents in a nursing home. We now know that if one of us were to be placed in a nursing home, all of our savings could be exhausted. How can we shelter our savings so that if one of us has to enter a nursing home, the other will still have a substantial amount of money to live on? —P.V., Georgetown, TX
A. There is no direct way to shelter your savings from the possible, but not inevitable, cost of long-term care (LTC). One obvious solution is to purchase a long-term care insurance policy. You’d have to pay an annual premium.
The premium could increase in the future— though that is less likely today than it was 10 years ago. In the last three years many insurance companies have increased their premiums for long-term-care insurance dramatically. So it is less likely that they are underpricing the insurance. Having such a policy would assure you of coverage that would pay for the bulk of possible long-term-care costs, whether you remain at home, become resident of an assisted-living facility or are in nursing home care.
But before you do that— and the number of companies offering LTC policies has fallen significantly in recent years— let’s consider a different perspective. First, you have enough financial assets— the $1,175,000 that you listed— to support LTC for a long time. You also appear to have enough income from Social Security and pensions to pay your basic expenses as a couple without leaning on our investments.
So, if one of you went into nursing care, the other would have the money to carry on without drawing heavily on investments for ongoing personal expenses.
Genworth, one of the major providers of long-term care insurance, does an annual survey of long-term-care costs. For 2014 their survey indicates these median costs: $41,184 a year to have a home health aide; $42,270 a year for one person in a private, one-bedroom unit in an assisted-living facility; $50,735 a year for a semi-private room in a nursing home; and $65,700 a year for a private room in a nursing home. For most people, these costs represent the fast track to being broke.
Your financial assets would last through nearly 18 years of private room nursing care, even if your $1,175,000 provided no return. Alternatively, a return of 5.6 percent would pay the $65,700 bill. And if full private nursing home care isn’t required, the money will last even longer even if it earns no return.
Could you still run out of money? Of course you could. You could be really unfortunate. But the operative word is “could.” The odds are against running out of money because most nursing home stays are relatively brief. How brief? A 2010 study published in the Journal of the American Geriatrics Society found that only 27.3 percent of those dying in the study period lived in a nursing home prior to their death. The median length of stay (half stayed for a longer period, half stayed for a shorter period) was 5 months. Sixty-five percent of nursing care residents died within one year of nursing home admission. The average length of stay was 14 months, due to a small number of people who had very long stays.
Viewed another way, 72.7 percent of those dying won’t need nursing home care, and 65 percent of the 27.3 percent of those who do will die within a year of admission. This suggests that about 90 percent of the population will either have no need for a nursing home stay or will stay less than a year. In other words, the probability of exhausting your financial assets is pretty low.