Long-term care insurance a good bet for single women

By Scott Burns, Special to the Times
Published August 28, 2007

Q: I am 60 years old. My financial adviser is strongly urging me to buy long-term care LTC insurance.

My mortgage is paid off (home value: $325,000). My investments and retirement portfolio stand at $350,000. My income is $35,000 with minimal liquid cash. I plan to work for some time to come and am healthy, though I will need to buy health insurance upon retirement.

Though I understand the benefits of LTC, I've found it difficult to research this subject. Your thoughts?

A: The best candidates for long-term care insurance are single women such as you. You are likely to live long enough - a few years longer then men, on average - to need long-term care.

More importantly, you don't appear to have alternatives to institutional care, such as an adult child who lives less than an hour away and could help oversee care for you in your home.

One way to think about LTC insurance is to consider it as "portfolio insurance" on your net worth. With your worth of $675,000, a policy that cost $2,500 a year would cost about 0.37 percent of that a year. The insurance would provide you with some assurance that you won't go broke, and even a three-year coverage period would allow plenty of time for an orderly liquidation of assets in the event you needed more than three years of care.

Preserving assets, of course, is important only if you want to leave some money to children or charity.

Just remember that when establishing limits on the policy, you will have ongoing income from other sources - so the policy doesn't need to cover the entire cost of any care you need. Do get inflation protection.

And, finally, don't take all the sales talk about "staying at home care" as an alternative to institutional care too seriously. This is a powerful marketing tool because no one likes the idea of paying money to insure the privilege of staying in a nursing home.

But if you examine your policy closely, you'll find that you don't qualify for coverage until you can't perform several of the five Activities of Daily Living (ADLs). When this happens, you'll probably need more than an eight-hour visit from a non-nursing person every day of the week. A nursing home is likely to be the most workable solution.

One alternative that you may not have examined is the idea of moving to a continuing care community when you are somewhat older. These communities offer care that ranges from independent living with some community meals (no more cooking!) to assisted living and nursing care, all in one facility.

Because you move in before you are disabled, these communities offer a broader network of supportive peers as well as professional care.

Calculating Social Security

Q: I am 56. I retired at age 52 after 30 years of teaching. I plan to take Social Security benefits at age 62. My understanding is that for the 10 years I will have been retired and have not contributed to Social Security, the benefit I will get will be decreased a small percent each of those years. A friend told me that something has changed and that my amount will be based on the average of my 30 years of salaries and not my last five highest years' salary. Is this correct?

A: Your Social Security benefit is based on your earnings record, up to a maximum of 35 years of work.

If you work more than 35 years, the calculation is based on the highest 35 years of earnings. If you work less than 35 years, the no-earnings years will count as zero and would lower your average and your benefit.

If you visit the Social Security Web site, you will find that it offers three calculators to help you figure out what your benefit is likely to be.

The link you want to use is www.ssa.gov/planners/calculators. htm, and the calculator you should use is No. 2, the Online Calculator. It will ask you to select when you want to start receiving benefits and to input your earnings record. Then it will estimate your benefits.

You'll find your complete earnings history on the annual statement you receive in the mail each year from Social Security. Given the importance of Social Security for all but the wealthiest people, I think one of the best "investments" you can make is to take the time to become familiar with this useful and well-managed Web site, www.ssa.gov.

Scott Burns has been a financial writer and editor for more than a quarter century. Questions about personal finance may be sent to scott@scottburns.com. Those of general interest will be answered in future columns. His Web site is www.scottburns.com.