Strategies for Addressing the Long-Term Care Threat

If you're just joining me, this is the fourth post in my continuing series on addressing the threat of ruinous long-term care expenses. The first three posts provided an overview of the threat, assessed the risks we face, and summarized the various long-term care services you can choose.

Now let's move on to review some strategies for addressing the threat of potentially ruinous long-term care expenses. You can adopt one or more of the following strategies:

1. Buy long-term care insurance.
2. Set up a separate savings account that's dedicated to long-term care expenses and won't be tapped to pay for ordinary living expenses.
3. If you have a substantial amount of home equity, avoid borrowing on the value of your residence until you need to pay for long-term care expenses. At that time, tap your equity through a home equity loan or a reverse mortgage, or simply by selling the home and realizing the profit. Avoid the temptation to take out a reverse mortgage or home equity loan to pay for ordinary living expenses or luxuries during your retirement years.
4. If you have significant 401(k) accounts or other retirement savings, use only the interest and dividends to pay for ordinary living expenses. If you reach a time when you need long-term care, you can start tapping into the principal to pay for these additional expenses.
5. Enroll in the Community Living Assistance Services and Supports Act (CLASS) government insurance program that was introduced by health care reform.
6. Rely on Medicaid or other government programs.
7. Hope that family and friends will take care of you.

I don't recommend enrolling in the CLASS program, because it's an untested new government program with benefits that will be inadequate to cover high-cost facilities. I also don't recommend relying on Medicaid for a number of reasons - you must deplete your assets first to qualify, you may not qualify if you aren't severely disabled, the facilities aren't that great, and the program is underfunded in many states.

And I'm guessing you don't want to be a burden on your family and friends. Note, however, that if you do nothing about the threat of long-term care expenses, in essence, you're choosing to rely on government programs or family and friends.

This leaves the first four strategies, and in my next post, I'll discuss their relative pros and cons of each. Regardless of the strategy you adopt, I highly recommend that you also adopt a lifestyle that minimizes the need for formal long-term care, and I'll write about these lifestyle possibilities in a future post.

Let me repeat: Everyone should have a strategy in place to address the potential threat of ruinous long-term care expenses. For your sake, for your spouse's sake, for your children's sake, don't put your head in the sand!

More on CBS MoneyWatch
Should You Buy Long-Term Care Insurance?
Long-Term Care: What Are the Real Risks?
Long-Term Care Services: Why It Pays to Shop
Recession-Proof Your Retirement Savings

Steve Vernon

View all articles by Steve Vernon on CBS MoneyWatch»
Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Retirement Game-Changers: Strategies for a Healthy, Financially Secure and Fulfilling Long Life and Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck.

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