Strategy: Best Practices to build LTC plan with and without Insurance
Many times, the general marketing around aging talks about Long-Term Care planning as something that always includes the purchase of an insurance policy. This may or may not be in your best interest. Like most things with retirement, the answer is that it “depends” on your personal situation.
It is important for you to understand that while your situation is different from everyone else, most federal employees and their families will use a blended approach to solve for their declining health needs once in retirement.
General Overview
The fundamental rule of long-term care planning is that neither standard health insurance (FEHB) nor Medicare covers non-medical, custodial long-term care (such as help with bathing, dressing, or eating). Therefore, a specific strategy must be designed regardless of whether you carry an active insurance policy or choose to self-fund.
Strategy A: Planning WITH Long-Term Care Insurance
When utilizing an active policy—whether it is a grandfathered FLTCIP policy or a private market policy—best practices require treating the insurance as a co-payer, not a complete solution.
The “Gap” Calculation:
The Rule: Policies pay up to a specific Daily Benefit Amount (DBA).
The Strategy: Research the median cost of care in the zip code where you plan to retire. If care costs $250 per day but your policy only covers $150, you must identify a specific monthly income source (like your FERS pension or Social Security) to cover the remaining $100 gap.
The Elimination Period Reserve:
The Rule: Most policies have a 90-day waiting period before benefits begin paying out.
The Strategy: You must have a liquid emergency fund readily available to pay 100% of your care costs out-of-pocket for at least the first 3 months.
Inflation Alignment:
The Rule: Most policies have a 90-day waiting period before benefits begin paying out.
The Strategy: You must have a liquid emergency fund readily available to pay 100% of your care costs out-of-pocket for at least the first 3 months.
Inflation Alignment:
The Rule: Flat benefit amounts lose purchasing power over time.
The Strategy: Best practice dictates reviewing your policy’s inflation protection rider every 3 to 5 years to ensure your daily benefit amount remains reasonably close to current facility costs in your area.
Strategy B: Planning WITHOUT Long-Term Care Insurance
Because the Federal Long Term Care Insurance Program (FLTCIP) remains frozen to new applicants until at least the end of 2026, many employees must utilize a “self-funding” strategy.
The TSP “Lockbox” Strategy:
The Rule: Self-insuring means setting aside assets specifically earmarked for medical emergencies.
The Strategy: Logical planners calculate the risk by “mentally walling off” a portion of their Thrift Savings Plan (TSP). For example, if the median two-year stay in a nursing home is projected to cost $300,000, you deduct that amount from your usable retirement total and treat it as unavailable for standard living expenses.
Home Equity as a Strategic Lever:
The Rule: For many retirees, the home is their largest non-liquid asset.
The Strategy: Formulate a secondary “IF/THEN” plan for your primary residence. Agree in advance whether a paid-off home would be sold or leveraged via a reverse mortgage to generate the liquid cash required to pay for home health aides or memory care.
The Formal Family Care Agreement:
The Rule: Unpaid family caregiving often leads to career disruption and financial strain for adult children.
The Strategy: Draft a legal “Personal Care Agreement” while you are still healthy. This outlines your specific preferences for receiving care at home and allows you to legally compensate a family member for their time using your self-funded savings without it being viewed as a “gift” by Medicaid auditors later.
Key If/Then Scenarios
- IF you already hold an active FLTCIP or private policy, THEN your best practice is to build a 90-day cash reserve and ensure your pension income can cover the daily cost gaps.
- IF you are planning to self-fund due to the federal program freeze, THEN walling off a portion of your TSP or other assets and executing a formal family care plan are the standard paths to mitigate risk.
Standard Operating Procedure (Next Steps Checklist)
- Calculate Your Area: Use a public cost-of-care calculator to look up the median costs of home care and assisted living in your target retirement zip code.
- Earmark Assets: Determine exactly which account (TSP, Roth IRA, or home equity) will act as your self-insurance fund if you do not carry private insurance.
- Verify Legal Paperwork: Ensure your Financial Power of Attorney and Advance Medical Directive are updated so someone has the legal authority to pay for your care if you are incapacitated.
