Long Term Care – How to Plan Financially for the Unhealthy Years?
Discussion between my relatively healthy 78 year-old father and me on the need to have his cataract surgery
Dad: No need to change to private doctor, just wait.
Me: I’m not asking you to decide now. Consider it first. If you really can’t see well, it’s not good to wait.
Dad: What’s the big deal? No need to waste the money.
Me: Hey, you are still able to have the surgery after the checks. Do you know some people may not even be able to do the surgery? Without surgery, they may eventually go blind. You still have the option.
Dad: I also don’t know how long I have left. If I don’t have many years left, what’s the point?
Me: The point is you should not be concerned if you do the surgery and don’t have many years left. What you should be worried about is not doing the surgery and have many years left!
What is Long Term Care?
From Wikipedia, the definition of Long Term Care is:
“Long-term care (LTC) is a variety of services which help meet both the medical and non-medical needs of people with a chronic illness or disability who cannot care for themselves for long periods. Long term care is focused on individualized and coordinated services that promote independence, maximize patients’ quality of life, and meet patients’ needs over a period of time.”
From Ministry of Health (“MOH”), Long Term Care Services is described as as:
“Intermediate and long term care (ILTC) services are typically required for persons who need further care and treatment after being discharged from an acute hospital as well as community-dwelling seniors who may be frail and need supervision or assistance with their activities of daily living.”
Essentially, Long Term Care is about caregiving for the unhealthy years when one is no longer able to be independent or live independently. These caregiving costs include home nursing, domestic helper, staying in assisted living facilities, nursing homes…etc which are not covered by hospitalisation insurance such as MediShield Life and Integrated Plans. Family support provided by unpaid family members are not included even though there can be significant financial costs on the family member.
How long are the Unhealthy Years?
It was mentioned during the National Day Rally 2017 that currently, Singaporeans live on average to 82 years old with 8 of those years experiencing ill health. These are average numbers and it is possible for the unhealthy years to last beyond 8 years. Also, unhealthy years are not exclusive only to the seniors or the elderly. A young person may experience years of ill health requiring long term care after suffering from accidents such as a motor accident or a serious illness such as stroke.
How much does Long Term Care cost?
In a recent study, it is estimated that each senior in Singapore will need an average of $51,000 a year to provide for health costs by the year 2030. If we explore deeper into the study, Singapore is in Group 1 or the “Money-Rich, Time-Poor” Group and the Long Term Care component is estimated to be 45%. This means that from 2030, long term care will cost $22,950 a year or about $1,900 a month in Singapore.
Source: Asia Pacific Risk Center
(Click above image to enlarge)
Based on an average of 8 unhealthy years, the average long term care costs works out to be $183,600 in old age. Even for the affluent, this can potentially be quite a strain especially when this cost is likely to be incurred later on in life when there is no more working income and retirement funds are depleted from the initial retirement years.
Generally, funding for Long Term Care comes from government medical scheme (i.e. ElderShield), private medical insurance (e.g. ElderShield Supplements) and Personal Assets. Of course, there is also the safety blanket of children and family member’s chipping in and topping up.
Long Term Care Planning is really Care Giver’s Welfare Planning
We can all understand the concept of looking after a baby. The baby is small, weak, unable to communicate well, emotionally unpredictable and every abnormal health signal such as a fever have to be treated with utmost care and concern. Caregiving is a full time job and in this case, “full-time” means 24 hours a day.
Looking after an elder who requires long-term care is similar in many ways. We can carry a 3.5kg baby by ourselves (in my case with one hand), but carrying and supporting a 50kg elder is much more challenging.
While we know that the baby will eventually outgrow this dependency period after 2 or at most 3 years, there is no clear end point in looking after an elder.
While the financial commitment in providing for the baby will likely be stable or even reduce as the baby grows into a toddler, the financial commitment in providing for an elder is unpredictable and likely to increase over time.
Physically it is a challenging endeavor, emotionally it requires patience and financially it will be draining. Once we understand this, we will realise that planning for Long Term Care is not about planning for yourself, it is about planning to relieve the physical, emotional and financial burden of the caregivers.
If getting your Long Term Care planning done right is a concern, you can perhaps begin by considering the following:
1. Do up a Lasting Power of Attorney (“LPA”)
The LPA is a legal document which allows you to appoint someone you like and trust to help you make decisions should you lose your mental capacity one day. Being in need of Long Term Care (i.e. suffering from disability) does not automatically lead to the activation of the LPA if one is still mentally alert but the activation of the LPA will mean that the person is definitely in need of ongoing Long Term Care.
I’ve written previously on the 5 levels of ElderCare and in the article I shared what I’ve learned about Long Term Care in the United States. Everything in Long Term Care simply boils down to having a place to stay and someone to help. The LPA is the tool to appoint someone and make it easier for him or her to take decisions on your behalf should mental incapacity happens. The side benefit in having your LPA done is that you will really think through your plans and decide on a primary caregiver.
During the unhealthy years, it is a blessing to having someone who is willing to be responsible for your caregiving. However, this alone is not enough. That someone needs to have the financial means and resources to do the job which brings me to the next point…
2. Upgrade Your ElderShield
If you have not opted out of ElderShield, you will receive $400 a month for a period of 6 years if you lose the ability to be independent. The total payout for ElderShield is $28,800. As I alluded to earlier, the average long term care costs for an elder in Singapore from 2030 onwards will be $183,600 in total. Upgrading your ElderShield coverage to cover the difference will be the logical, sensible and rational thing to do.
Yet, from my observation, there are still some who have chosen not to upgrade their ElderShield. In fact, besides those who have chosen not to upgrade, there are others who have opted out of the ElderShield scheme altogether. There can be many reasons for this and one particular reason given by people whom I’ve spoken to is that while the consequence of needing Long Term Care is worrying, it is not a guarantee that it will happen to them.
Thus, the preference is to save and invest the insurance premiums for retirement which of course is a certainty. This also brings me to my next point…
3. Blend Long Term Care into Retirement Planning
In the 3-phase retirement concept, the unhealthy years are also known as the “No-Go” years. As the “No-Go” years are recognized as part of retirement, there is intentional financial planning for the “No-Go” years as part of overall retirement planning. Not so long ago, separate insurance plans such as ElderShield supplements or critical illness insurance coverage are used for this “No-Go” phase.
However, there are now retirement annuity plans with long term care protection available. This type of plans are designed primarily for retirement income planning by providing an income for a number of years during retirement. What is unique about such plans is that should disability happens during the income pay-out period, the income pay-out will increase. If no disability happens, the plan will pay out the income as normal.
I’ve incorporated these type of plans into my retirement planning recommendations for clients and I’ve found that it is much easier for most people to accept as the feeling is that of playing a “Win or Draw” game.
If blending Long Term Care into Retirement planning appeals to you, you can use this Guide to Annuity Plans (With Long Term Care Protection) to learn more about this strategy.
(NOTE: Get our Guide to Annuity Plans with Long Term Care Protection to help you understand this type of plans and the key features that you need to consider in selecting a suitable plan for your needs. Get your guide Here)
Be Fair to the Caregiver
In my opinion, Long Term Care is not an issue of probability but an issue of consequence. If we have planned for it and never find ourselves in a position of needing it, we are unlikely to bankrupt ourselves financially or emotionally. On the other hand, if we have not planned for it and yet, find ourselves in need of long-term care, both the financial and emotional consequence will be disastrous. The caregiver, who is likely to be someone that is the closest and dearest, may end up sharing and bearing this consequence.
Whether you choose to transfer the risk to an insurer or even blend this protection need into your retirement planning, the bottom line is that having a plan is better than having none at all.
One final thought…there are items in personal financial planning that a Do-It-Yourself approach may work well. I will like to respectfully suggest that Long Term Care planning is not one of them. The issues are complex and the cost of getting it wrong is going to be significantly higher than any cost that you might save from a Do-It-Yourself approach. If you are unsure, you can consider using this Retirement Clarity Checklist that includes the 4 major decisions to make and plan for in advance for Long Term Care.
Enjoy the planning process and may you have a comprehensively designed Long Term Care plan that you will never have to use!
Article by Lee Meng Choe
The writer is the Executive Director (Distribution) of GEN Financial Advisory