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Senior Citizen's Guide to Pittsburgh

Planning Ahead
What Are Your Financial Options?

No one likes to think about getting older, facing chronic illness or becoming too frail to live safely on our own. But it happens, and when it does, seniors and their families often find themselves unprepared, both emotionally and financially.

In fact, while nearly 70 percent of people turning 65 this year will need long-term care in their lives, an AARP survey found that only 35 percent of people think they will need it. Similarly, most Americans believe that their long-term needs will be met by Medicare, Medicaid, and Social Security benefits or by their existing health insurance. Yet they are wrong: Social Security and private health insurance do not, Medicare doesn’t (except for short-term rehabilitation such as recovering from surgery), and Medicaid will only pay for those who are impoverished.

Fortunately, there are steps we each can take to help protect our assets and ensure that we have greater choice in long-term care options as we age — but only if we carefully plan ahead.

One of the best ways to prepare for future health-care needs is through the purchase of long-term care insurance. This insurance can provide coverage for a full range of services, including home care, adult day care, personal care, assisted living and nursing homes.

It can also help families safeguard hard-earned assets.

Pennsylvania recently enacted a law that encourages the purchase of long-term care insurance by allowing residents to protect those assets on a dollar-for-dollar basis, and offers potential federal tax incentives.

For example, the purchase of $100,000 in long-term care coverage allows residents to keep $100,000 in assets and still receive Medicaid if and when their insurance coverage runs out.

While there is no single rule of thumb to follow regarding coverage, financial experts say that unless you are poor enough to qualify for Medicaid, or wealthy enough to pay for your care as you do other bills, you should consider long-term care insurance. The best time typically to buy this insurance is in your 50s or early 60s.

Be sure to compare policies and prices among insurance providers, as they can range greatly. And be sure to buy a policy that covers in-home services as well as assisted living and nursing homes. This gives you more options of finding the high-quality professional caregiver that’s right for you.

If you own your home, and are over age 62, a reverse mortgage may be another option. A reverse mortgage lets you tap into your home equity and you don’t have to pay back the loan for as long as you live there.

Funds from a reverse mortgage could pay for renovations to make the home safer for an elderly loved one, for home health care, to provide family caregivers with funds for out-of-pocket expenses, or to purchase long-term care insurance.

The federal government also is moving to encourage more individuals to take responsibility for their long-term care needs. Included in the recently-enacted health care reform legislation is the Community Living Assistance Services and Supports (CLASS) Act, a federal program which works to make long-term care insurance more available.

Individuals who pay a premium into the program can receive, after five years, a cash benefit expected to be approximately $50 a day that can be used to offset the cost of long-term care services. This program is expected to be available in 2011.

The money can be used to help seniors maintain independence at home or in a community residential setting of their choice, ensuring they continue to age with dignity and respect.

Some seniors choose to transfer their assets to family members so they can qualify for Medicaid. If you do this, you must follow state and federal rules. The transfer of assets must take place a minimum of five years before care is needed or Medicaid eligibility will be denied. The risk is that if something unexpected happens, it’s possible to have no assets to pay for care and no Medicaid coverage.

Finally, if you are over age 50, you may want to take advantage of “catch up” contributions to your 401K or IRA plans. You can shelter additional contributions and build a larger nest egg.

With all of these options, you should talk with a certified financial planner to see what makes the most sense for your situation.

With nearly 80 million baby boomers on the verge of retirement and our nation’s entitlement programs stretched to the limit, it has never been more important for each individual to plan for his or her future needs.

The simplest step is to start talking now — husband to wife, children to parents. It may not be an easy conversation, but it’s necessary, and it may turn out to be the best decision you ever made.

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