Sustainable Bliss

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Long Term Care Insurance

As we experience the aging of our parents and older friends, it is clear that it is important to think about how we will manage a good quality of life when we cannot do everything ourselves. Some statistics:

  • Average age needing Long Term Health Insurance: 81
  • Average duration of stay over 1 year: 3.5 years
  • San Diego County Average for care: $270/day => $99,000/yr (California Averages)

Kinds of Long Term Care:

  1. custodial care - non-skilled personal care, like help with activities of daily living like bathing, dressing, eating, getting in/out of a bed/chair, using the bathroom (source)
  2. skilled nursing care - Nursing care such as help with medications and caring for wounds, and therapies such as occupational, speech, respiratory, and physical therapy
  3. long-term care - Services that include medical and non-medical (custodial) care for people with a chronic illness or disability.
  4. hospice care - Short-term, supportive care for individuals who are have a life expectancy of six months or less. Focuses on pain management and emotional, physical, and spiritual support for the patient and family. It can be provided at home or in a hospital, nursing home, or hospice facility.

Custodial care is the focus of this post.

Medicare does not include custodial care, and you can only get custodial assistance from your state's Medicaid program if you have less than $2000 in assets, and $600 in income (see below for details).

So if you have assets you want to protect, and sufficient income, long term care insurance often makes sense.

Some considerations when choosing a Long Term Care Insurance plan:

  • individual or group plan
    • group plan may be canceled
  • daily or monthly benefit
    • should cover 70% minimum daily benefit
    • you want monthly for home care
  • payment processing
    • reimbursement, indemnity, cash
  • waiting period before benefits start
    • normally 90 days - you pay out of pocket for this amount of time
  • inflation protection
    • important - want compound; typically 3%
  • facility-only or comprehensive that includes in-home care
    • for in-home, you must have a primary caregiver already
  • waiver of premiums while you receive care
  • benefit limits: period/total amount
    • average duration of stay over 1 year is 3.5 years, <15% more than 4 years

Long Term Care Partnership Policy

** not really viable anymore, as premiums have gone up **

California sample insurance rates

finding an agent: Agent Review * LTC Financial Solutions

FYI, if you fill out Schedule A when doing your annual taxes, you can enter long term care premiums, between $700 (less than 50 yrs old) up to $4,660 (over 70 yrs old).

Medicare / Medicaid

You are eligible for Medicare at age 65.  Medicare only covers medically necessary care and does not cover custodial care. Medicare does cover long-term care in a long-term care hospital or skilled nursing facility up to 100 days, some medical in-home care and hospice care. There are a limited number of facilities that are Medicare-certified. Even on Medicare, you are still responsible for copays.

Medicaid pays more of your bills, but you must be eligible.

Financial Eligibility for Medicaid

Assets whose value is counted in determining financial eligibility for Medicaid (max total of $2000):

  •  Checking and savings accounts
  • Stocks and bonds
  • Certificates of deposit
  • Real property other than your primary residence
  • Additional motor vehicles if you have more than one.
  • Cash surrender value of whole life insurance
  • Jewelry over $100
  • Your home if its equity value is greater than $500,000 ($750,000 in some states) and your spouse or child does not live there

Assets that do not get counted for eligibility:

  • Your primary residence
  • Personal property and household belongings, including all jewelry of spouse
  • One motor vehicle used for transportation
  • Whole Life insurance with a face value under $1,500; all Term Life insurance
  • Burial plots
  • IRA of applicant/beneficiary, if it is being distributed via periodic payments of interest and principal
  • IRA of spouse
  • Annuities if it is being distributed via periodic payments of interest and principal computed to be exhausted at the end of annuitant's life expectancy.
  • $2000 in cash

Income included these sources (max $600/mo to fully qualify) :

  • Regular benefit payments such as Social Security retirement or disability payments
  • Veterans benefits
  • Pensions
  • Salaries
  • Wages
  • Interest from bank accounts and certificates of deposit
  • Dividends from stocks and bonds

Spousal Impoverishment

If one person in a married couple needs long term care, the assets of both of them will be drawn down until all copays, etc are paid. So if one person needs long term care and then passes away, the survivor could be left destitute, as they are responsible for any outstanding bills. There is a Spousal Impoverishment Standard, that states that the spouse can have $119,220 in liquid assets and $2981 in monthly income, except if income is in spouse's name, then they can keep it all.

If you have limited assets and income, and will rely primarily on social security, it might not make sense to pay for long term care insurance, as the medical care

Insurance Policy Sources:

California Partnership for Long-Term Care The ABCs of Long Term Care Insurance California Department of Insurance Suze Orman

Government Program Sources: California Advocates for Nursing Home Reform


What to Look For

Understand how the fund/stock sits:

    • Size: large cap, mid cap, small cap
    • Sector: by country, by industry
    • Fixed income vs long term capital appreciation
    • Style: growth vs value
    • Domestic vs International
    • Other factors: emerging market, SRI, REIT, commodities

Check historical performace

    • versus the benchmark
    • versus similar funds/stocks
    • focus more on long term (5 years)


    • how long has the manager been there? best >5 yrs
    • performance during manager's tenure
    • should be invested themselves

Risk profile

    • Morningstar analyst rating


    • opt for no sales charges / loads / commissions
    • low expense ratio (under 1%)
    • low turnover (under 40%)
    • low cash reserves
    • 12b-1 fee = marketing = avoid


    • standard deviation

Some definitions:

SRI - Socially Responsible Investing / Socially Conscious

There are lots of different kinds of socially conscoius approaches. Sometimes it concerns avoiding companies that produce or sell alcohol, tobacco, gambling . Another vein is including companies that are engaged in environmental sustainability or clean energy. Also, sometimes this approach is concerned with fair employment practices or promoting human rights.

ETF - exchange traded funds

mutual fund that tracks an index, commodity or category of assets, but trades like a stock.

Individual Stocks


Index Funds


Tax Implications

Retirement Planning

Plot out how and when different investments can be accessed to determine when you can retire

Common Retirement Income Streams

  • 401(k)
    • deposit monies pre-tax
    • withdrawal taxed as regular income
    • can begin withdrawal at age 59.5
    • must begin withdrawal by age 70.5
    • can take as lump sum or installments, or turn into annuity
    • SEPP option for withdrawals before age 59 1/2
    • Rule of 55 applies
  • Roth IRA
    • deposit monies taxed
    • withdrawal tax fee if account has been open min 5 years
    • can begin withdrawal at age 59.5
    • can withdraw principal at any point tax free
    • SEPP option for withdrawals before age 59 1/2
  • Traditional IRA
    • deposit monies pre-tax
    • withdrawal taxed as regular income
    • can begin withdrawal at age 59.5
    • 10% penalty if withdraw before age 59 1/2
    • must take RMD (required minimum distribution) at age 70 1/2
    • SEPP option for withdrawals before age 59 1/2
  • Profit Sharing Plan
    • withdrawal taxed as regular income
    • can roll into IRA or 401(k)
    • SEPP option for withdrawals before age 59 1/2
    • Rule of 55 applies
  • Pension
    • withdrawal taxed as regular income
    • if it is not a significant amount, check into turning it into an annuity
    • SEPP option for withdrawals before age 59 1/2
    • Rule of 55 applies
  • Social Security
    • check to see what you can expect:
  • Rental Income
    • taxed as regular income, minus expenses and depreciation
    • re-sets cost basis of home to date it turns into rental

Withdrawal Tips

  • Can start drawing out retirement assets penalty-free the year after you turn age 59 1/2
  • Penalties
    • 10% penalty if withdraw before 50.5 yrs old
    • 10% penalty does not apply for health insurance for unemployed
    • avoid by using SEPP
  • SEPP = Rule 72(t) / 72(q) substantially equal periodic payments
    • can draw retirement assets out earlier than 59 1/2 penalty free if you take these set payments
    • must take for either 5 years min or until you reach 59 1/2
    • IRS formula for how much you can take out annually, based on your current age and the amount of money in the account:
  • Rule of 55:
    • if employee leaves in year they turn 55 or older, no 10% penalty for withdrawals
  • Health Saving Account
    • deposit monies pre-tax
    • while employed, deposit as much as possible into HSA account
    • stays with you after you leave job
    • can use for health insurance premiums, co-pays, etc

General Approach

  • roll Profit Sharing Plan or pension into 401(k) / IRA for ease of control/access
  • keep tabs on taxable withdrawals to be sure you stay below tax rate bump
  • start with taxable streams - 401(k), Traditional IRA, Profit Sharing Plan - so that non-taxable (Roth IRA) can keep growing and your overall tax burden is less
  • consider moving funds into Roth IRA as early as possible, bearing in mind tax consequences (up to tax rate bump)

If leave job before 55:

  • start SEPP from 401(k) / IRA
  • start withdrawal from Roth (principal only) penalty free - last resort

If leave job after 55, before 59 1/2:

  • use Rule of 55 to start withdrawal of 401(k) and Profit Sharing Plan penalty free