Long-term care includes a whole host of services that you may require to meet various personal needs. And eventually, around 60% of us will need assistance with things many take for granted, according to the Administration for Community Living, a division of the U.S. Dept. of Health and Human Services. Whether it is because you have been visited by an unfortunate event or due to health conditions that come about through aging, things like getting dressed, taking a bath, running errands, or making meals may require assistance. Planning is the key, but many people are not sure what is covered by insurance, and others are often misinformed about Medicare coverage.
Get informed
There are many common misconceptions about what Medicare covers and doesn’t cover. Medicare only pays for long-term care if you require skilled services or rehabilitative care. But there are limits.
- Medicare will cover a nursing home for a maximum of 100 days. The average Medicare-covered stay is a much shorter 22 days.
- It will also pay if you are at home and are receiving skilled home health or other skilled in-home services. Generally, long-term care services are provided only for a short period of time.
Medicare does not pay for non-skilled assistance with what is called Activities of Daily Living, which make up most of long-term care services. These would include bathing, eating, getting dressed, getting in and out of bed, walking, and assistance using the bathroom. You will have to pay for long-term care services that are not covered by a public or private insurance program. However, Medicaid does pay for the largest share of long-term care services. To qualify, your income must be below a certain level, and you must meet minimum state eligibility requirements. To be eligible for Medicaid, you must have limited income and assets. The income limit for Medicaid varies by state. Medicaid will count things such as Social Security and disability benefits, pensions, salaries, wages, and interest and dividends. It will not include food stamps, housing assistance from the federal government, and home energy assistance. Medicaid will also review your assets, including assets that are counted for eligibility. These include checking and savings accounts, stocks and bonds, CDs, and property outside your primary residence. However, equity in your home may affect whether Medicaid will pay for long-term care services, including nursing home care and home and community-based waiver services. Are you considering gifting assets to qualify under Medicaid’s stricter limits? According to the American Council on Aging, the date of one’s Medicaid application is the date from which one’s look-back period begins. The look-back period is 60 months in D.C. and all states but California, where it is a more lenient 30 months. That said, if there is just one takeaway, please realize that Medicare coverage for long-term care is limited, and there are hurdles that may prevent you from obtaining Medicaid. Laws vary depending on the state. If you have additional questions, your financial professional would be happy to assist you.
Paying for long-term care
If you don’t have long-term care insurance or are unable to obtain it, here are some options you may consider outside of Medicaid. Have you considered a home equity loan? There isn’t a requirement to live in the home, and there is plenty of flexibility in paying the loan back. But beware that the inability to make payments could force foreclosure. And, in today’s rising rate environment, your payment could rise. Life insurance that includes a long-term care benefit could provide needed cash, while policies with an “accelerated death benefit” provide tax-free cash advances while you are still alive. The advance is subtracted from the amount your beneficiaries will receive when you pass away. Are you familiar with a life settlement? A life settlement is the sale of a current life insurance policy to a third party. It’s usually available for those 70 and older. Although the proceeds are taxable, you could raise cash by selling your policy. The proceeds may be used as you wish, including long-term care. You may also tap existing assets. Health Savings Accounts can be used to pay qualified medical expenses without incurring a tax liability. Depending on your age, you may take tax-free withdrawals to pay long-term care premiums. If you have a Roth IRA, you could pay long-term care costs or premiums without paying taxes. You may invest in a long-term care annuity. You will pay a lump sum of money and receive a set amount of income, paid regularly, for the rest of your life. Long-term care annuities offer special provisions to help pay for long-term care expenses. The need to access or finance long-term care is an unpleasant prospect most of us would rather not think about. But avoidance is not a strategy. Be proactive. Be aware of your options. Plan early. As always, your financial professional would be happy to answer any of your questions or get you pointed in the right direction.
Storm clouds in September give way to a sunnier October
For reasons that are not fully understood, September has historically been the worst month for stocks, according to the average S&P 500 return for each month (St. Louis Federal Reserve dating back to 1970). During September, the Dow shed 8.8% and the S&P 500 Index gave up nearly 10% (MarketWatch). Historically, stocks turnaround in October, and the remainder of the year is favorable for investors. So far, markets have not deviated from the pattern.
Source: Wall Street Journal, MSCI.com, Yahoo Finance, Bloomberg
MTD: returns: September 30, 2022–October 31, 2022
YTD returns: December 31, 2021–October 31, 2022 *in US dollars
What led to the rebound in October, a rebound that fueled the best monthly rise in the Dow since 1976, according to Barron’s? Bear market rallies are not uncommon. Following the steep decline in September, it’s not unusual for overly negative sentiment and oversold conditions to lead to a bounce, as we saw in June and into August. The mirror image would be a pullback in a bull market, when excessive speculation and bullish sentiment can lead to a short term downdraft. But October’s strong rally was not simply technical in nature. As we saw when second quarter earnings were reported, profits for most S&P 500 firms are coming in ahead of low expectations, according to Refinitiv. In other words, we didn’t see the earnings apocalypse that some had feared. But there were some high-profile exceptions. The uncertain global economy and the strong dollar (overseas sales must be translated back into a stronger dollar, which reduces earnings) made a mess of several tech bellwethers. Finally, a Wall Street Journal story late last month all but guaranteed a jumbo-sized rate hike during November, but there was also talk that some Fed officials are growing increasingly leery over the current steep path of rate increases. They don’t expect near-term rate cuts. Instead, some Fed officials may argue that the Fed should slow the pace and possibly stop hiking rates early next year, as they assess the impact of recent policy actions. Unlike Fed pushback from pivot talk during the summer, Fed officials haven’t lined up to disavow the story.
Pivot lite
More likely, the Fed maintains its tough anti-inflation rhetoric but hints at a more flexible position amid rising economic uncertainty. The Conference Board’s Leading Index, the housing market, and the inverted yield on the 10-year/3-month T-bill (the 3-month rate is higher than the 10-year yield) suggest a recession is unavoidable, probably next year. Yet, in September, Fed Chief Powell was decidedly hawkish. In just six short weeks, we could hear a different tone—still resolute on inflation, but with more wiggle room to react to changing economic conditions. Investors are anticipating some shift going forward, and it contributed to last month’s rally. But any adjustment in policy could quickly fall by the wayside with another disappointing inflation number.
Bottom line
The general economic fundamentals have yet to noticeably shift. Just as low rates, low inflation, and record corporate profits helped drive equities higher during the 2010s, today’s high inflation and high-rate environment has led to a bear market. But investors attempt to sniff out new trends. It would be highly unusual for investors to wait for the all-clear sign before piling into stocks. That said, bull markets follow bear markets, as Table 2 illustrates below. Eventually, the major indexes reclaim their former highs. Since peaking in early January, the S&P 500’s decline through its most recent low of October 12 has been 25.4% (S&P 500 data from the St. Louis Federal Reserve).
I trust you’ve found this review to be educational and helpful. If you have any questions or would like to discuss any matters, please feel free to give me or any of my team members a call. As always, thank you for the trust, confidence, and the opportunity to serve as your financial professional.
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This communication is designed to provide accurate and authoritative information on the subjects covered. It is not however, intended to provide specific legal, tax, or other professional advice. For specific professional assistance, the services of an appropriate professional should be sought.
The views stated in this letter are the opinion of the author and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change with or without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.
The return and principal value of stocks fluctuate with changes in market conditions. Shares when sold may be worth more or less than their original cost.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.
The NASDAQ Composite Index includes all domestic and international based common type stocks listed on The NASDAQ Stock Market. The NASDAQ Composite Index is a broad based index.
The S&P 500 is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The Russell 2000 Index includes 2000 small-cap U.S. equity names and is used to measure the activity of the U.S. small-cap equity market.
The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. The MSCI World Index represents 23 developed market countries.
The MSCI Emerging Markets Index is a free float-adjusted market-capitalization-weighted index designed to measure the performance of global emerging market equities.
The Bloomberg Barclays US Aggregate Bond Index, or the Agg, is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the United States. Investors frequently use the index as a stand-in for measuring the performance of the US bond market.
The hypothetical investment results are for illustrative purposes only and should not be deemed a representation of past or future results. Actual investment results may be more or less than those shown. This does not represent any specific product or service.
A diversified portfolio does not assure a profit or protect against loss in a declining market.
The return and principal value of stocks fluctuate with changes in market conditions. Shares when sold may be worth more or less than their original cost.
The return and principal value of bonds fluctuate with changes in market conditions. If bonds are not held to maturity, they may be worth more or less than their original value.
Distributions from traditional IRAs and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% IRS tax penalty. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59½ or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.
Before rolling over your retirement account, consider all available options, which include remaining with your current retirement plan, rolling over into a new employer’s plan or IRA, or cashing out the account value. When deciding between an employer-sponsored plan and IRA, there may be important differences to consider—such as range of investment options, fees and expenses, availability of services, and distribution rules (including differences in applicable taxes and penalties). Depending on your plan’s investment options, in some cases, the investment management fees associated with your plan’s investment options may be lower than similar investment options offered outside the plan.